How to Save Money on Lender-Required Flood Insurance

Photo: Thomas Good

If your lender requires you to purchase flood insurance, there's good news and bad news.

The bad news is that you'll have to pay flood insurance premiums every year until you pay off your mortgage whether you want flood insurance or not.

The good news is that there’s little need to shop around--the federal government regulates flood insurance premiums, so you’ll pay the same amount no matter which insurance company issues your policy.

You also have a small say in how much your policy will cost.

Your lender won’t require you to purchase contents coverage, so you can skip that (unless you feel you might actually need it).

You can also choose your deductible, up to a maximum of $5,000. Choosing the highest deductible will save you money. But again, if you actually are concerned about your flood risk and $5,000 is more than you could pay if your property were damaged, you might choose a lower deductible.

Finally, you only have to insure your property for the value of the structure. You do not have to purchase $250,000 in coverage (the maximum amount offered), and if your property is worth $150,000, you don’t even have to purchase $150,000 of coverage. The value of your land constitutes part of the value of your property, but you aren’t required to insure your land against flooding.

The appraisal that was conducted when you purchased your home and your homeowners insurance policy are good sources of information about the actual replacement cost of your home’s structure. That’s the amount you’re required to insure.

Aside from the obvious source of flooding--excessive rain--hurricanes, winter storms, and snowmelt can also cause floods. New land developments are also said to contribute to flooding by changing natural runoff patterns.

But in some areas, it's hard to see any logical justification to purchase flood insurance, so if you find yourself in that situation, these tips will help you minimize your insurance costs.

Read more about lender-required flood insurance in my article, Why You Might Have to Buy Flood Insurance.

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