So you get a call from the bank about the home you are trying to buy or already own. They state its in a high risk flood zone and they are requiring flood insurance for the loan amount. So you start searching for flood insurance to cover the loan amount. This is where 3 dangers of covering the loan amount can be created which are cost to rebuild, personal property, and additional living expenses.

Let's discuss those three dangers of getting flood insurance for the mortgage loan amount.  Let's say you own have a loan amount of $75,000 on a 2500 square foot house more than likely $75,000 is not going to rebuild it. While it is great that the loan amount would be covered if it was a total loss, but most flood losses are not total losses. 

So how would you come up with the difference to repair your home. Well if you are in a presidentially declared area you might get a little disaster assistance or be able to apply for an SBA loan . What happens if you get declined?

Well you could be on the hook for the difference which could be more than a $100,000 hit to your wallet. This is why it is so important to insure your home for whatever the replacement cost is but many flood companies don't calculate this so what do you do? Well it is recommended that the flood insurance matches what the home insurance policy states.

The next danger that only covering the loan amount for flood insurance does is it exposes your personal property. Remember if your home floods your home insurance generally will not cover your belongings. If you are only covering the loan amount you could lose everything you own. So how much personal property coverage do you need? Well we generally recommend fifty percent of what ever the house is being covered for.

So the last danger is like pouring gasoline on the fire. So you only covered the loan amount and now you have lost all your belongings, so where are you going to stay. Well if you don't have temporary living expenses listed you might be in a shelter if you are lucky. This would pay for a place for you to stay while your property is being repaired.

As we have shown you only covering the loan amount for flood insurance can be a very dangerous situation. So if you have questions about how to add these other coverages or which coverages to pick please visit our website Flood Insurance Guru. You can also visit our YouTube channel or Facebook page where we do daily flood educational videos.

Chris Greene


Chris Greene

President of The Flood Insurance Guru
M.S. in Emergency Management with a focus in Flood Mitigation