Why doesn't homeowners insurance cover floods?

It covers hurricanes, tornados, lightning strikes, but not floods.

Why not?

Because a “flood” in insurance terms, is any water damage. This includes broken pipes and other leakage. Because of that, flood insurance is an expensive addition (one broken pipe in the basement can cause a large amount of damage).

Home owners policies cover floods caused by broken pipes.

They don’t cover damaged caused by rising waters, rain water and such.

To be eligible to buy flood insurance, you need to live in a flood zone, or be at moderate risk, and the community must be a participating flood zone community.

They can’t differentiate between the two? One being a natural disaster and the other an accident?

Meant to add that in 1968, Congress created the National Flood Insurance Program (NFIP) in response to the rising cost of taxpayer funded disaster relief for flood victims and the increasing amount of damage caused by floods. The Mitigation Division a component of the Federal Emergency Management Agency (FEMA) manages the NFIP, and oversees the floodplain management and mapping components of the Program.

Nearly 20,000 communities across the United States and its territories participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage. In exchange, the NFIP makes Federally backed flood insurance available to homeowners, renters, and business owners in these communities.

This is why it is handled seperately.

“flood” in insurance terms is NOT any form of water damage. My policy lists:
special rules for escaping water
discharge, overflow, or backup
freezing water
surface water (and flood is contained in this category)
ground water
water damage to outside structures
and dampness or temperature
as types of excluded water loss
(but then do insure ensuing covered loss unless another exclusion applies <?>)

insurance companies don’t provide flood coverage due to the catstrophic nature of the event. large numbers of properties in the usually large flood plains will be
damaged, and too many losses at the same time will put too much financial strain the company.

Flood insurance IS provided by FEMA (Federal Emergency Management Agency) through NFIP (National Flood Insurance Program)

In the simplest terms: Washing maching overflows and ruins hardwood floors = homeowner’s insurance. Water line running to fridge busts and causes damage = homeowners insurance.

River rises and takes out your first floor = you better have flood insurance.

Insurance Companies are in business to make money, and floods are generally a money-losing policy for them.


  • floods occur over a fairly large area, and usually damage every home in the area. So the insurance company is paying out many, many claims at once. Fires, lightning strikes, etc. are basically random, and only a few houses will have claims at one time. Even tornados often go thru a neighborhood and hit only a few houses, leaving others right next door undamaged.
  • floods occur fairly regularly in certain areas. But sometimes supposedly intellegent people build homes in these ‘flood plains’. So it’s quite possible that this same area will flood again, the next year with heavy rains. That means the insurance companies might have to pay repeated claims on this property. They don’t want to do that. Or they have to charge really high rates for such policies.
  • floods very seldom occur in other areas. So people living there don’t see any need to buy flood insurance. This defeats the basic plan of insurance, spreading the risk over a lot of people, only a few of whom will actually have a claim.

So Insurance companies aren’t very interested in flood insurance policies.

For the OP:

We can take the probability of an event and the cost of that event to get the expectation—it’s like an average. There is some expected cost of insuring your car because you have X probability of an accident that will cause $Y in damage, so the expected cost is $XY.

An insurance company takes all those expectations and pools them together. What happens is that the expected costs all add up, but the anticipated variation in the expected cost over time doesn’t add up the same way. As a result, the insurance company has less variance in what it expects to pay out; the company reduces risk, which is the wild swings in costs, but not the over all costs of accidents.

But with floods there is wide correlation across a region, so the risk is not balanced out; e.g., some people get in car accidents and some don’t, but when a flood hits there is wide-spread damage. Thus the math that makes insurance possible necessarily works against insuring for floods.

This is especially true for floods because we can map out flood plains, so it is even harder to insure because those not in flood plains wouldn’t subsidize those who build in them voluntarily. Many other natural disasters cannot be so clearly demarcated, and so insurance for them is more feasible.