Don't Let a Flood Destroy Your Finances
I (Laura Bente) watched from my third-floor dorm room as students went around campus in canoes and kayaks.
It had rained for nearly 48 hours straight. Most of Keene State College – and the rest of Keene, New Hampshire – was under 4 to 6 feet of water. The roads in and out of town were impassable. The power was out.
And the news was warning that things could get worse if any dams in the area broke... a big risk for a town in the Connecticut River Valley.
I had it easy. My dad drove through the floodwaters in his lifted pickup and got me to a hotel.
The 2005 flood in southwestern New Hampshire was one of the worst to strike the region in decades. It displaced more than 1,200 people, and four lost their lives. It took days for the power to come back on and months for all the roads to be fixed.
More and more Americans have flood stories like mine...
On September 29, 2023, more than 8 inches of rain fell on parts of New York City, making it the wettest day on record since 1948. The flash floods closed roads, subways, and airports, stranding people in buildings and cars.
In September 2024, Hurricane Helene broke rainfall records across western North Carolina. The flooding killed more than 100 people and caused more than $50 billion in damage. A family friend who visits the region for volunteering tells me the area still has a long way to go until recovery, with many homes and roads still needing to be rebuilt.
In a PBS Frontline documentary on Helene, one resident said, "We always thought [that because we were] in the mountains, that it wouldn't happen."
Like this resident, you might not even realize you live in an area where flooding is a risk. Despite what some folks think, coastal areas aren't the only places that experience serious flooding.
And in much of the country, experts now predict that a major "100-year flood" will strike more often than once a century.
Take a look at this map of America's rising flood risks...
The trouble is that for decades, the government used an old model that lacked solid data to determine whether a given area is susceptible to floods. As a result, families don't know their true risk of flooding.
The Federal Emergency Management Agency ("FEMA") estimates only about 15 million households live in a flood zone. But according to a 2018 study from Environmental Research Letters, it could be more than 40 million.
Only around 4 million households have flood insurance. Which means tens of millions of folks aren't ready for the worst to happen.
Not only that, but our flood-insurance system is broken.
FEMA's National Flood Insurance Program ("NFIP") is designed to provide a safety net for the increasing number of communities that are vulnerable to flooding and might not have access to any other coverage.
Trouble is, it pays out billions more in claims than it collects in insurance premiums. The program owes the U.S. Treasury $22.5 billion... and that's after Congress forgave $16 billion of its debt in 2017.
Even if the debt gets forgiven again, these losses will only grow as the NFIP regularly borrows from the Treasury to cover insurance costs.
In 2021, FEMA fully implemented a new system to track flood risk and calculate policy premiums called Risk Rating 2.0. The system is meant to increase the number of households eligible for the NFIP and more accurately calculate premiums based on each individual home's flood risk and value. But that means some people have seen huge increases in price...
A report from NPR found that homes in Louisiana's Plaquemines Parish have seen their flood-insurance rates rise by an average 500%. (This is an area where 90% of the homes could flood.) Only about 23% of policyholders nationwide saw a decrease due to Risk Rating 2.0.
Higher rates will help keep the NFIP solvent... But they're causing more homeowners to drop their coverage and just hope the floods will spare them. Enrollment fell for each of the past two years.
That's the opposite of the trend we'd like to see... In counties affected by Hurricane Idalia in August 2023, fewer than 1 in 5 homes had federal flood insurance. More and more folks risk losing everything to the raging waters – with no insurance check to help them rebuild.
Remember, your regular homeowners insurance policy does not cover flood damage.
Meanwhile, Congress must renew the NFIP on September 30. This is normally a nonevent... But these days, some government officials want to eliminate FEMA entirely. If you live in a flood zone, keep an eye on this topic.
How to Know if You Need Flood Insurance
My home in Maryland is near a river and several streams. But when I did some research, I saw that it's unlikely to flood.
I started using a map from FEMA. It highlights properties that are eligible for the NFIP. I could see that while some nearby neighborhoods are vulnerable to floods, my house was in a low-risk zone.
I also checked the nonprofit First Street's flood-risk model. (First Street also provides your fire, wind, air, and heat risk.) It gave me similar confidence that I don't need flood insurance.
If your home is at greater risk than mine, decide if investing in flood insurance is worth it to you...
According to FEMA, 1 inch of floodwater can cause up to $25,000 worth of damage in a home. And the average rate of flood insurance is about $899 annually. But premiums vary widely based on your flood risk.
The cost also depends on whether you're eligible for an NFIP policy or if you need to purchase private flood insurance. If you live in an area where your homeowners policy requires flood insurance, you can buy an NFIP policy or go the private route.
It's also important to note that either policy has coverage limits. An NFIP policy will only cover $250,000 for the dwelling and $100,000 for contents. You're on the hook for anything over those limits. Private insurers offer more flexible coverage options and could, in some instances, be cheaper than government-backed flood insurance.
So make sure you shop around for the best deal. And decide if it makes more sense to pay for flood insurance or, if the premiums are sky-high, to "self-insure" by setting aside cash to pay for potential flood damage.
The time to start doing this research is now. By the time you see kayakers paddling past your bedroom window, it's already too late.
What We're Reading...
- Something different: The invasive tick species spreading disease across America.
Here's to our health, wealth, and a great retirement,
Laura Bente, CFP® with Dr. David Eifrig
August 21, 2025