When you are buying a house, you need to consider lots of different things in order to make sure the property is affordable. Home insurance premiums are one of the things that are worth thinking about. That’s because home insurance premiums will need to be paid the entire time that the property is mortgaged — and ideally, for the entire time the property is owned.
Home insurance prices can vary widely depending on many factors, including the size of the home and the material it is constructed with. But there’s one decision in particular that could make premiums significantly more expensive. Here’s what it is.
A property’s location can make all the difference in home insurance premiums
One of the biggest decisions that homeowners make that affects insurance premiums is the location of their home. Specifically, if a home is located in a flood zone, this is going to lead to much more expensive insurance premiums.
See, insurers decide whether to provide coverage, and set the cost of home insurance coverage, based on the risk of having to pay out a claim, and based on the amount a claim is likely to cost them.
When a home is located in a flood zone, the chances of water damage occurring are very high. and FEMA reports that the average flood insurance claim was $52,000 in 2019, which is a fairly large claim. The risks of providing flood coverage are so great that standard insurance policies won’t even cover flood damage. A special policy will need to be purchased either from one of a few insurers offering private flood coverage or through the National Flood Insurance Program operated by FEMA.
Paying for a whole separate policy obviously adds significant costs to home insurance — especially given the fact that there’s a high risk these policies will end up paying out a claim. FEMA reports that the average annual flood insurance premium was $700 in 2019, which is a huge added cost for homeowners who need this type of coverage.
Should you purchase a property in a flood zone?
Any homeowner who buys a home in a flood zone is going to be required by their mortgage lender to have flood insurance coverage in place. And even homeowners who buy a house with no mortgage will want to choose to buy this coverage. Otherwise, their standard insurance won’t pay out anything when a flood happens and they will have no financial recourse and will need to pay for losses out of pocket.
Now, sometimes, people will decide these costs are worth paying for. If a person wants to live on the beach, for example, and can afford waterfront property, they may decide the added flood insurance costs are a small price to pay for the gorgeous views their property provides.
But it’s important to know upfront that flood insurance is going to be an added expense and build this into the budget. Those considering buying a home in a flood zone should get an idea of what the insurance will cost to protect against flood damage, and make sure their property will be affordable even with these high additional insurance premiums factored in.
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