How to Consolidate HSA Accounts: A Comprehensive Guide

A health savings account (HSA) allows you to save money for healthcare expenses on a tax-advantaged basis. If you have multiple HSAs, it could make sense to combine them into a single account for easier financial management.

The steps to consolidate HSA accounts are fairly straightforward, though there are some tax considerations to know. Here’s an in-depth look at how to combine HSA accounts and why you might choose to do so.

Key Points

•   Consolidating multiple HSA accounts simplifies financial management and may reduce fees.

•   The process involves transferring funds to a single HSA, similar to merging bank accounts.

•   No tax penalties occur with trustee-to-trustee HSA transfers.

•   Consider provider fees, investment options, and transfer paperwork when consolidating.

•   Consolidation doesn’t affect HSA contribution limits but requires strategic planning for fund access during transfers.

Understanding HSA Consolidation


When you combine HSA accounts (which are only available to those with high-deductible health plan, or HDHP), you transfer the funds from each account into a single HSA. More specifically, you would typically open a new HSA and then arrange for the money in your existing HSAs to be moved to the new account. It’s similar to merging bank accounts if you’re combining, say, multiple high-yield savings accounts or checking accounts.

You’re not required to withdraw any money when consolidating HSAs, nor do you lose any of the tax benefits of health savings accounts by doing so. And as a refresher, HSAs offer these tax advantages:

•  Tax-deductible contributions

•  Tax-free earnings

•  Tax-free withdrawals when the money is used to pay for qualified healthcare expenses

Once you turn 65, you can use the money for anything you want, even if it’s not healthcare-related, just as you might with funds in a standard savings account. You will, however, have to pay income tax on non-medical withdrawals.

Recommended: Savings Account Calculator

Benefits of Consolidating HSA Accounts


Here are some reasons why you might want to combine multiple HSA accounts into a single entity.

•  You prefer to have fewer accounts to manage.

•  You could reduce some or all management fees by moving your HSA funds elsewhere.

•  You would like a different range of investment options for your HSA contributions.

•  You want to simplify healthcare expense tracking and year-end tax filing.

If you’ve ever struggled with managing multiple bank accounts, then you might see the advantage of combining HSAs.

Here’s one more reason to consolidate. There’s no tax penalty if you combine accounts using what’s known as a trustee-to-trustee transfer. With this arrangement, you direct the company that currently holds your HSA funds to transfer them directly to your new HSA provider.2

If you were to rollover your funds (another possible method of moving HSA money), that would mean you would take a distribution and then deposit it. This can be a taxable and reportable event if you conduct more than one check-based rollover every 12 months, which likely means they’re not a good method for consolidating multiple accounts. Also, if the funds are distributed in this way, they must be deposited in a new HSA account within 60 days of receiving the distribution. Otherwise, again, the transaction could be taxable.

Steps to Consolidate Your HSA Accounts


Combining HSA accounts is similar to completing a 401(k) rollover or combining IRA accounts. If you’ve done either of those before, you should already have an idea of what to expect.

That said, here’s how to consolidate HSA accounts in five simple steps, conducting what you may hear referred to as a trustee-to-trustee transfer. This means the funds involved never pass through your hands but move between financial institutions.

1. Review Your Current HSA Accounts


Before you can initiate a transfer, you need to know what you have. Make a list of your HSAs, including:

•  Which custodian or trustee holds them

•  Your account number

•  Your current balance

You may also want to review the fees you’re paying for each one and the returns your HSA investments are generating. That can help you decide if it makes sense to consolidate all your HSAs or just some of them.

2. Choose a Target HSA Provider


If you know which HSAs you want to consolidate, it’s time to look for a new provider. The options include banks, insurance companies, and brokerages.

As you compare HSA providers, look at:

•  Investment options, including the risk profile and historical returns

•  Fees, including investment fees such as expense ratios and separate account management fees

•  Investment minimums, if any

You may want to read reputable, verified reviews of HSA providers to learn what current or past customers do and don’t like about them. For example, a provider may offer an outstanding range of investment options but fall short when it comes to customer service.

Recommended: Does Changing Banks Impact Your Credit Score?

3. Initiate the Transfer Process


Once you’ve selected a new provider, you’ll need to open an HSA account with them. You’ll use the new account number to direct your current HSA provider on where to send the money.

Once your account is open, you can move on to the next step which is completing a transfer request form. This is one of the key steps to transfer money between banks or brokerages when moving HSA funds.

4. Complete Required Transfer Paperwork


Your new HSA provider should give you a transfer request form that you’ll fill out and send to your current custodians. Each provider’s form may vary, but typically, you’ll need to include your:

•  Name

•  Employer name, if your plan is sponsored by your employer

•  Date of birth

•  Social Security number

•  Contact information, including your address, phone number, and email address

•  Transferring custodian’s name and address

•  The account number of the HSA you’re transferring funds from

•  The account number of the HSA you’re transferring funds to

In a way, it’s similar to opening a bank account. You’re just providing a little more information.

You’ll also need to specify how much of your HSA balance you want to transfer. You can choose a full or partial amount. Finally, you’ll need to sign and date your form.

You’ll repeat this process using a form for each HSA that you want to transfer funds from. When your current providers receive the forms, they’ll cut a check to your new provider to complete the transfer.

5. Follow Up on the Transfer


How long you’ll wait for your HSAs to be consolidated will depend on the speed at which your current and new HSA providers move. It could take anywhere from two to five weeks or longer for the process to wrap up.

Your new HSA provider should send you a confirmation once the transfer is complete, but you can always reach out to ask for a status update. You’ll also need to follow up with your old custodians to make sure the account is closed and find out whether you owe any account closure fees.

Considerations Before Consolidating


Before you move ahead with consolidation, ask yourself what you hope to gain. Perhaps your goal is to save money on fees (which is also a reason some people switch their traditional bank accounts to online banking). In that case, it’s important to do your research on your new provider to make sure you’ll actually pay less in fees.

Also, consider whether you’ll be able to continue making new contributions to your HSA. If you’re consolidating accounts because you’ve retired, for example, then you can’t make any new contributions to an HSA if you’re no longer enrolled in your high-deductible health plan. So if you’re on Medicare, you will not be able to contribute to your HSA funds.

Potential Challenges in HSA Consolidation


It’s possible you could hit some snags when consolidating HSAs, so it helps to be prepared. Here are some of the main issues to watch out for:

•  Transfer fees. Your current HSA provider may charge transfer fees and/or account closure fees to finalize your consolidation. If so, it helps to know what those are beforehand and how you’re expected to pay them.

•  Processing times. There’s no set timeline for HSA transfers. You can help minimize the possibility of delays by filling out your transfer request paperwork accurately and following up with your providers to make sure your documents have been received.

•  Access limitations. Your new or current custodian may direct you to hold off on tapping into your HSA funds while the transfer is in progress. That could present a logistical challenge in the short term if you need to fill prescriptions or cover other healthcare expenses. It can be wise to ask in advance about these potential access issues so you can prepare as needed.

In a way, the process for HSA consolidation is not that different from what to expect if you switch banks. You might just be waiting a little longer for the change to be finalized.

After Consolidation: Managing Your Single HSA


Once you combine HSA accounts, it should be easier to manage your savings. Here are some tips for staying on top of your newly-consolidated health savings account.

•  Keep track of withdrawals, including what you spent the money on, the amount, and the date.

•  Track your contributions if you’re still making them so you don’t exceed the annual contribution limit. For 2024, the limits are $4,150 for self-only coverage and $8,300 for family coverage, with those 55 and older being allowed to contribute an additional $1,000. For 2025, the limits are $4,300 for individual coverage and $8,550 for family coverage, with an additional $1,000 contribution being possible for those age 55 and older.

•  Review your investments at least once a year to check their performance and the fees that you’re paying.

•  Consider talking to a financial advisor about how to make the most of your HSA for maximum tax benefits.

Recommended:Guide to Closing a Bank Account

Tax Implications of HSA Consolidation


If you’re completing a trustee-to-trustee transfer, there’s no immediate tax impact. You would, however, be subject to IRS tax rules when it’s time to make withdrawals from those accounts. Again, withdrawals for qualified medical expenses are always tax-free.

Where you can potentially owe taxes is when consolidating HSA accounts is if you choose an indirect rollover, as noted above. With an indirect rollover, your current HSA provider cuts a check to you. You then have 60 days from the date the check was issued to deposit the check into your new HSA, and you can only do this once a year.

If you don’t follow these guidelines, your funds would likely be considered a distribution, which would be taxable, with an additional penalty for those under 65 if not used for medical purposes.

The Takeaway


Consolidating HSA accounts could make sense if you’d like an easier way to keep track of your healthcare savings or if you’re looking for lower fees and better investments. Understanding what’s required can help you navigate the consolidation process with minimal hiccups.

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FAQ

How long does the HSA consolidation process typically take?

The HSA consolidation process can typically take a few or several weeks, but it may vary depending on how fast your current and new providers operate. You may need to do some strategic planning to make sure you don’t need to withdraw any funds for healthcare expenses while transfers are in progress.

Can I consolidate an HSA from a previous employer?

Yes, you can consolidate HSA accounts from one or more previous employers. It could make sense to do so if you’d like just one account to manage. You’d need to know which custodian holds your old HSAs so you can complete the process, including sending each of them transfer request forms.

Will consolidating my HSAs affect my contribution limits?

Transfers of HSA funds won’t affect your annual contribution limits. The amount you can contribute for 2024 maxes out at $4,150 for individual coverage and $8,300 for family coverage. For 2025, the limits rise to $4,300 and $8,550. Additionally, those 55 and over can contribute an additional $1,000 per year. HSA contribution limits are adjusted annually for inflation.


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What Is Deposit Insurance?

Deposit insurance is a guarantee by the federal government that the money in a bank customer’s account is insured up to a specific amount. Deposit insurance is typically provided to bank customers by the Federal Deposit Insurance Corporation (FDIC), an independent federal agency that works to make sure deposits are safe in the event of bank failures. Currently, up to $250,000 per depositor, per account ownership category, per insured bank is covered as long as the money is in an FDIC-insured financial institution. The National Credit Union Administration, or NCUA, covers money held in credit unions in a similar manner.

Most, but not all, banks offer this kind of safety net. Read on to learn more about how deposit insurance works, plus ways to make sure your money is protected.

Key Points

•   Deposit insurance guarantees bank customers’ money up to a specific amount by the federal government.

•   In the United States, the FDIC provides this insurance for banks, covering up to $250,000 per depositor per account ownership category at participating banks.

•   Deposit insurance protects funds in the very rare event of a bank failure.

•   The FDIC’s role is to maintain stability and confidence in the U.S. financial system.

•   Since the FDIC’s inception, no depositor has lost any FDIC-insured money.

Definition and Purpose of Deposit Insurance

Deposit insurance protects the money customers have in deposit accounts in FDIC-insured banks in case there is a bank failure. What is the FDIC specifically and what does it do? The agency was created in 1933 after the Great Depression, when thousands of banks failed. The purpose of the FDIC is to protect bank customers and maintain stability and confidence in the U.S. financial system. Since its creation, no depositor has lost any FDIC-insured money.

The funds you have in an FDIC-insured bank, whether it’s in a savings account or a checking account, are insured up to $250,000 per depositor, per account ownership category, per bank. In the very rare event that your bank fails, your money will be covered up to the insured amount.

In the case of bank failure, the FDIC historically pays customers within a few days up to the insured limit. This typically happens in one of two ways: The FDIC provides the customer with the insured amount in a new account at another insured bank, or they send the customer a check for the insured amount.

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How Deposit Insurance Works

Deposit insurance works by protecting customers’ money in the event their bank fails. If a bank shuts down, the FDIC reimburses depositors’ money through the Deposit Insurance Fund (DIF). The DIF is backed by the U.S. government and funded by a type of insurance premium that banks pay plus interest earned on Treasury notes bought by the FDIC.

While most banks in the U.S., including online banks, are insured by the FDIC, not all of them are. Banks must apply for FDIC coverage. When you visit your bank, look for FDIC signs or ask a bank representative if the institution is FDIC-insured.

(Credit unions insure their money separately through the National Credit Union Administration, or NCUA vs. the FDIC.)

Account Coverage

When it comes to how much money banks insure, the amount is typically up to $250,000 per depositor, per account ownership category, per bank, though some banks may offer options for receiving additional coverage through special programs they’ve created.

Account ownership categories include:

•   Single accounts, such as a checking account or savings account that’s yours alone

•   Joint accounts, like an account you have with a spouse or another person

•   Certain types of retirement accounts you have at a bank, including an individual retirement account (IRA)

•   Trust accounts

•   Corporation, partnership, or unincorporated association accounts

In practical terms, what this means is that if you have two single accounts at the same bank, such as a checking account and a savings account, you’ll be insured for up to $250,000 of the combined balance of the two accounts. So you’ll want to make sure that both accounts don’t add up to more than $250,000. Anything over that amount would not be insured.

However, if an individual has a single account and a joint account at the same bank, or a single account and an IRA, they will be insured for up to $250,000 for the single account plus another $250,000 for the joint or IRA account because the accounts fall into different account ownership categories.

And if you have two single accounts but each one is at a different FDIC-insured bank, they will each be covered for up to $250,000. That’s because they’re at two separate institutions. In addition, some banks offer programs in which they will allocate deposited funds that total more than $250,000 per depositor among insured partner banks. This can allow the customer to have FDIC coverage in excess of the usual limits while one bank manages their money.

You can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) to calculate your specific account coverage.

As a bank customer, you don’t have to do anything to get FDIC coverage. As long as your account is in an FDIC-insured bank, your money, up to the limit per account ownership type, is automatically covered. It can add to your sense of financial security to know you have liquid assets protected in this way.

History of Deposit Insurance

Deposit insurance dates back to the Great Depression, when approximately 9,000 banks across the U.S. failed between 1930 and 1933. The Depression caused widespread panic, and many people rushed to the bank to withdraw their funds. Banks couldn’t handle all the withdrawal requests, and many were forced to shut down. Many bank customers lost their money.

Because of that, President Franklin Roosevelt signed the Banking Act of 1933 into law, which created the FDIC to protect bank depositors. In January 1934, the agency began operating, insuring $2,500 per depositor. Five months later, the FDIC-insured amount was doubled to $5,000, and the FDIC became a permanent part of the U.S. financial system by law in 1935.

Fifteen years later, the FDIC insurance coverage was raised to $10,000 per depositor, and at that point it fully protected 99% of all deposit accounts in FDIC-insured banks. In 1969, the coverage was raised to $20,000, and in1974, amid high inflation and rising interest rates, it was increased to $40,000.

In 1980, President Jimmy Carter signed the Depository Institutions Deregulation and Monetary Control Act into law, raising the FDIC-insured limit to $100,000. Over the next 14 years, during the Savings and Loan Crisis, approximately 1,300 savings and loans failed, along with more than 1,600 banks. The FDIC covered the bank losses.

When the financial crisis known as the Great Recession hit in 2008, dozens of U.S. banks failed. But no insured bank depositors lost their money. (In the ensuing seven years, hundreds failed.) Two years later, in 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, permanently increasing the FDIC insurance limit to $250,000.

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Deposit Insurance Around the World

According to the Center for Global Development, 80% of high-income countries currently have deposit insurance in place, and the number of lower-come countries with deposit insurance has more than tripled. Here’s an overview of deposit insurance in the U.S. and the European Union.

United States (FDIC)

In the U.S, deposit insurance is handled by the FDIC, which was created as an independent federal agency in 1933, after the Great Depression. The FDIC works to make sure deposits are safe in the event of bank failures. Up to $250,000 per depositor, per account ownership category, per bank is insured as long as the money is in an FDIC-insured bank.

The other purpose of the FDIC is to help maintain stability and public confidence in the U.S. financial system. Since its inception, no depositor has lost a penny of FDIC-insured money.

European Union

In the European Union (EU), deposit insurance is known as national deposit guarantee schemes (DGS), and they protect the savings of EU depositors whose banks fail. Deposits are guaranteed up to €100,000. DGS are also designed to help prevent mass withdrawals in the event a bank fails and to promote financial stability.

In 2015, a proposal was introduced by the European Commission to set up one European deposit insurance scheme (EDIS) that would build upon the national DGS system in EU countries. Meant to strengthen and unify coverage, the EDIS would be a single European fund to insure up to €100,000 per depositor, per bank in case of bank failure. However, as of late 2024, the EDIS was still being debated by EU members.

Benefits of Deposit Insurance

Deposit insurance has a number of advantages for bank customers. These benefits include:

Insuring Deposits

Deposit insurance can provide peace of mind to depositors at FDIC-insured banks because up to $250,000 per depositor, per bank, per account ownership category is protected if the bank fails. Since the agency was created, no depositor has lost money in an FDIC-insured account.

Protecting Different Types of Deposit Products

FDIC protects various types of deposits at insured banks, such as:

•   Checking and savings accounts

•   Money market deposit accounts (MMDAs)

•   Certificates of deposit (CDs)

•   Prepaid cards, as long as certain conditions are met

Covering Various Account Ownership Categories

Deposit insurance pertains to different types of account ownership categories, including:

•   Single accounts, such as a checking account or savings account

•   Joint accounts

•   Certain types of retirement accounts a customer has at a bank, including IRAs

•   Trust accounts

•   Corporation, partnership, or unincorporated association accounts

Depositors are covered up to $250,000 per account ownership category, per FDIC-insured bank.

Automatic Protection

There’s no need to enroll in or pay for FDIC protection. As long as you deposit money in an FDIC-insured bank, your funds are automatically protected up to the limit.

Helping to Maintain Stability and Confidence in the Financial System

By protecting depositors’ money in case of a bank failure, deposit insurance helps instill confidence in the financial system and maintain the system’s stability.

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Limitations and Criticisms

For all its benefits, deposit insurance has come under criticism. And it does have limitations. Here are some of the main critiques.

May Encourage Banks to Take On Excessive Risk

Some critics believe that deposit insurance may encourage banks to take more risks since they know the FDIC will protect insured deposits and help bail out failing banks.

Coverage Is Not Enough

For many individuals, the $250,000 FDIC-insured limit may be enough (and, as noted above, some banks offer programs for enhanced coverage). But for businesses, especially those that use banks for payroll and other purposes, the limit may be too low.

Protection Does Not Extend to Certain Assets

There are a number of assets that deposit insurance does not cover. These include stocks; bonds; mutual funds; annuities; life insurance policies; cryptocurrency; and U.S. Treasury bonds, bills, and notes.

Uninsured Deposits

Deposits of more than $250,000 may be held by individuals and businesses. This could leave the account holder vulnerable in the very rare instance of a bank failure since insurance typically covers up to $250,000. (That said, some financial institutions may offer programs to protect more than that amount.)

In addition, not all banks are FDIC-insured. Individuals who have deposits in uninsured banks are at risk of losing their money if their bank fails. If your bank is not FDIC-insured, you may want to consider closing your bank account and switching to a financial institution that can give your money FDIC protection.

Finally, some depositors have more than $250,000 in two of the same account ownership category types. Their combined balance in a checking and a savings account might exceed the limit, for instance. They may not be aware of this, or perhaps they just haven’t gotten around to transferring money between banks to stay under the limit.

Other depositors may have combined bank accounts after getting married, for instance, and their new balance may exceed the limit.

If you have more than the insured limit in your bank account, there are ways to maximize FDIC insurance that you can explore.

How to Check If Your Deposits Are Insured

As mentioned, although the FDIC insures deposits in most banks, not all banks are protected. How can you tell if your bank is? If you use an online bank, the institution’s website should contain information about its FDIC coverage. If you use a brick-and-mortar bank, the next time you visit your local branch, check for a sign that says “FDIC-insured.” Each FDIC-insured financial institution is required to display official signs.

In the near future, it should be even easier to spot FDIC signage. In 2025, banks will be required to display the FDIC official digital sign on certain automated teller machines and to display it near the name of the bank on all bank websites and mobile applications.

Another way to find out if your deposits are insured is to use the FDIC BankFind tool.

Common Misconceptions About Deposit Insurance

There are a number of myths about deposit insurance. Here are some common misconceptions to be aware of.

•   Misconception: Every bank is FDIC-insured.
Fact: Most banks in the U.S. are FDIC-insured, but not every bank is. Look for FDIC signs at your bank’s branch or call the institution and ask them. You can also use the FDIC BankFind tool mentioned above.

•   Misconception: A bank customer has to apply for deposit insurance.
Fact: Customers do not need to apply for or buy FDIC insurance. The coverage is automatic for deposit accounts at FDIC-insured banks up to $250,000 per depositor, per account ownership category, per bank.

•   Misconception: Each deposit account a customer has is fully FDIC-insured.
Fact: The $250,000 limit applies per depositor, per account ownership category, per bank. So if you have two accounts in the same account ownership category type, such as a single checking account and a single savings account, you would be insured for up to $250,000 of the combined balance of each account.

•   Misconception: Every financial product offered by a bank is insured by the FDIC.
Fact: Deposit insurance only covers certain deposit accounts at an FDIC-insured bank. This includes checking and savings accounts, certain retirement accounts like IRAs containing deposit accounts, CDs, and money market deposit accounts. Investment products that are not deposit products, such as mutual funds, stocks, bonds, and annuities, are not FDIC-insured.

The Future of Deposit Insurance

Deposit insurance has changed numerous times throughout its history, and it’s possible it could change again. The FDIC has recently proposed certain reforms. In a May 2023 report, the agency outlined three options for deposit insurance reform.

The first is to leave the framework of the system as it is, but possibly raise the $250,000 limit. The second is to offer unlimited insurance to all bank depositors. And the third option is to provide targeted insurance with different limits for different account types. So, for instance, business accounts might get substantially higher insurance limits than other types of accounts.

The FDIC said that of these three options, targeted coverage “best meets the objectives of deposit insurance of financial stability and depositor protection relative to its costs.” However, action by Congress would be required to move forward.

The Takeaway

The Federal Deposit Insurance Corporation (FDIC) provides insurance that can help protect bank depositors in the very rare event of a bank failure. Its programs also help maintain stability and confidence in the U.S. financial system. As long as your bank is FDIC-insured, you are covered for up to $250,000 per depositor, per account ownership category. Deposit insurance applies to checking and savings accounts and CDs, among other deposit accounts. FDIC coverage is automatic — you don’t have to apply for or purchase it.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What is the FDIC insurance limit per depositor, per insured bank?

The FDIC insurance limit per depositor per insured bank is $250,000 per account ownership category type. Account ownership categories include single accounts; joint accounts; trust accounts; and corporation, partnership, or unincorporated association accounts.

Does deposit insurance cover investment products like stocks and bonds?

Deposit insurance does not cover investment products like stocks and bonds. It also does not cover mutual funds, life insurance, or annuities. Deposit insurance only covers certain bank deposit products such as CDs and money market deposit accounts, certain retirement accounts like IRAs, and checking and savings accounts.

How quickly can I access my insured deposits if a bank fails?

If a bank fails, the FDIC has historically paid customers their insured deposits within a few days. Typically, the FDIC will either provide the customer with the insured amount in a new account at another insured bank, or they’ll send the customer a check for the insured amount.


Photo credit: iStock/ovenimo

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Should You Call Roadside Assistance for a Flat Tire?

Should You Call Roadside Assistance for a Flat Tire?

Flat tires are one of the top reasons motorists call roadside assistance. Even when you know how to change a tire yourself, calling roadside assistance can be a good move. If you’re stuck on a dark or busy road or you have kids in the car, roadside assistance is safe and fast.

Roadside assistance plans are available from your car insurance provider, car rental companies, and other sources. We’ll explain how roadside assistance works, how much it costs for them to change a tire, and what else the service covers.

What Is Roadside Assistance?

Roadside assistance coverage is designed to help motorists experiencing a range of problems, from a dead battery to an overheated engine. You can call a toll-free number or use an app to contact your provider, and a dispatcher will send a qualified technician to your location. Depending on what services you require, your plan may pay all or some of the costs involved in getting your car back on the road.

You may be able to get roadside assistance coverage as part of your auto insurance policy. There also are auto clubs that sell subscription plans, or you may have a plan through your car warranty, credit card, car rental company, or another source.

If you’re one of many people who sit down annually for a personal insurance planning session, discuss this option with your insurer.

Recommended: Car Insurance Terms Explained

What Are the Benefits of Roadside Assistance?

Having a specific point of contact anytime you’re in need is arguably the top benefit of having roadside assistance coverage. This is especially important for first-time drivers. Instead of making multiple calls to find help from a nearby mechanic or garage, you can program your provider’s number into your phone or store it in your glove compartment with other relevant papers. If your provider offers an app, you can take advantage of that convenience.

With one call, you can get useful advice on what to do next. After assessing your situation, the dispatcher will get the appropriate service person out to help you. If your car can’t be fixed onsite, you can get a tow to a repair shop — and that cost may be covered as well.

Some plans offer benefits such as posting bond if you’re charged with a traffic violation or reimbursing you if you’re away from home and have to stay in a hotel overnight. Plans also may provide discounts on car maintenance, car rentals, hotels, and other perks. However, extra benefits may come at an extra cost.

Recommended: How Much Does Insurance Go Up After an Accident?

What Does 24-Hour Roadside Assistance Cover?

All roadside assistance programs are not the same, so it’s important to understand the coverage details and limitations of each plan you may be considering.

A plan may offer free fuel delivery, for example, for drivers who run out of gas — but typically there will be a charge for the gasoline received. Similarly, a plan may offer free lockout assistance, but a driver can expect to be charged if the locksmith has to make a new key. And there is usually a limit on how many miles a car can be towed for free.

Some plans limit the number of service calls you can make in a year. And plans also can have different rules regarding when a driver is or isn’t covered. With some plans, for example, you must be driving your own car when you call for assistance. But some plans will cover you even if you’re the passenger or driver in someone else’s car.

Programs generally include some type of coverage for:

1. Changing a Flat Tire

If you have a usable spare tire, your service provider likely can change a flat or blown tire onsite. If not, they can tow you to someone who can help.

2. Vehicle Towing

If your vehicle can’t be safely repaired or restarted onsite, roadside assistance can tow it to a nearby repair shop.

3. Battery Jump-Start or Replacement

Roadside assistance can give your dead battery a jump-start and, if that doesn’t work, tow you to a repair shop to get a new battery installed.

4. Lockout Assistance

If you’ve locked your keys in your car, roadside assistance can get a locksmith to help. Even if you’ve lost your keys, the service may be able to get you back in your vehicle and back on the road.

5. Winching Service

Your service provider may bring in a winch to extricate your car if it’s stuck in mud, ice, or a ditch.

6. Fuel Delivery

If you run out of gas, your provider can deliver fuel to your location. And if the battery in your electric car needs a charge, you can ask for a tow to the nearest charging station.

7. Quick Fix First-Aid

If you have a minor mechanical problem that can be fixed quickly, it may be possible to do so onsite. If not, the service can tow your car to a nearby repair shop.

Recommended: How to Lower Your Car Insurance

Auto Insurance Companies That Offer Roadside Assistance

Insurance companies that provide roadside assistance typically offer these services as an add-on to an auto policy. If you aren’t sure if you already have roadside protection, contact your agent or log in to your account on your insurer’s website to get information about your coverage. The information may also appear on your insurance card.

If your car is damaged after an accident or in a flood or fire, your auto policy’s collision or comprehensive coverage may apply to your towing costs. But this is not the same as having roadside assistance or “towing and labor” coverage.

Here are a few insurance companies that offer roadside assistance:

Allstate

Allstate offers its 24-hour roadside assistance programs to both policyholders and non-policyholders. Costs and coverage vary based on the plan you choose.

Geico

Geico’s roadside assistance program is available to policyholders as an add-on, and it covers most of the basics other plans offer. The cost is determined by the number of vehicles you want to cover.

Liberty Mutual

To access Liberty Mutual’s 24-hour assistance program, which offers basic roadside services, you must purchase optional towing and labor coverage as an add-on to your policy.

Nationwide

Nationwide offers roadside assistance as an optional add-on for policyholders. The plan covers the same basic services offered by other insurers, but optional features and other program details may vary by state.

Progressive

Emergency roadside assistance for flat tires is available as an optional add-on for Progressive auto insurance policyholders. Progressive’s program covers service basics such as towing, jump-starts, flat tires, and lockout assistance.

State Farm

State Farm’s roadside assistance program is an add-on for policyholders. If you have this coverage and need assistance, State Farm will be billed directly for any basic services you receive, so you may not have to worry about turning in your receipts and waiting to be reimbursed.

How Much Does Roadside Assistance Cost for a Flat Tire?

The cost to get your flat tire fixed may depend on if you have a usable spare tire and other factors. If you have a good spare tire available, the roadside assistance technician may be able to change your tire onsite and get you right back on the road at no charge.

If, for some reason, the tire can’t be changed onsite and your vehicle must be towed to a repair shop, the tow charge will be based on mileage. Many roadside assistance plans will go 15 miles or to the nearest qualified repair shop for free. But if you ask to be towed to a shop that’s farther away, you may have to pay for any extra mileage.

When your car arrives at the repair shop, you can expect to be charged if you need any parts or repairs, or a new tire.

How Much Does Roadside Assistance Cost Without Insurance

The most inexpensive way to get roadside assistance coverage is usually to have it included as an add-on through your auto insurance policy. Allstate, for example, offers its Roadside Advantage plan membership without an Allstate auto policy starting at $89 for the first year.

If your insurer doesn’t have 24-hour roadside assistance, or if you don’t like the plan your insurer is offering, you may want to check out online insurance companies to see what’s available based on your budget and needs.

How to Change a Flat Tire Yourself

Even if you have roadside assistance coverage, it can be a good idea to know how to fix a flat tire — just in case you forget your phone or can’t get cell service when you run into trouble.

If no one ever taught you how to change a tire, you might want to practice sometime when you’re in a safe place and you’re not in a hurry or wearing nice clothes. There are plenty of YouTube videos on the topic, or you can ask someone who knows their way around a car for a demonstration.

Here are a few tire-changing basics:

1. Drive Prepared

Make sure your spare is in good shape and your jack, lug wrench, and owner’s manual are always in your car. You might want to keep rain gear, work gloves, a flashlight, and wheel wedges in your trunk as well.

2. Safety First

If you suspect your tire is flat, turn on your hazard lights and pull off to the side of the road — as far as you can. Once you’ve stopped, you can put on your parking brake and get out to inspect your car. If you do indeed have a flat, secure your tires with wheel wedges or a couple of large stones.

To change a rear tire, place the wedges behind the front tires. To change a front tire, place the wedges behind the rear tires.

3. Remove the Hubcap/Wheel Cover

Consult your owner’s manual for instructions on removing the hubcap or wheel cover.

4. Loosen the Lug Nuts

Turn the lug nuts counterclockwise with your lug wrench. (Getting them started may require some effort!) Loosen the lug nuts about a quarter- to half-turn, but don’t take them off completely.

5. Put the Jack in Place

Check your owner’s manual for specific placement instructions.

6. Use the Jack to Raise the Vehicle

Carefully raise your car until the flat tire is about 6 inches above the ground.

7. Unscrew the Lug Nuts and Take off the Tire

Remove the lug nuts completely and put them in a safe place (a cup, envelope, hat, purse, etc.). Pull the flat tire toward you until it comes free and place it on the ground on its side.

8. Put on the Spare

Grab the spare tire and place it on the hub by lining up the rim with the lug bolts. Push gently until you can see the lug bolts through the rim.

9. Put the Lug Nuts Back in Place

Put the lug nuts back on the lug bolts and tighten them by hand.

10. Lower the Car and Tighten the Lug Nuts Again (and Again)

Lower the vehicle until the tire is touching the ground, but don’t let it down all the way yet. Tighten the lug nuts with the wrench, as tight as you possibly can, then lower the car all the way to the ground and remove the jack. Tighten each lug nut again with the wrench to be sure they’re all as secure as possible. Replace the hubcap (only if you can and want to), or put it in the trunk with the flat tire.

11. Stow Your Stuff

Congratulate yourself for being prepared, and be sure you put everything back in the trunk before you pull away. If you have a tire gauge, check to see if the spare has plenty of air (temporary spares typically require 60 psi). If the pressure is low, drive with caution to the nearest repair shop.

12. Get Your Damaged Tire Repaired

Spare tires aren’t meant to be driven on for long. Get your car to a tire shop or garage as quickly as possible to buy new tires or get your old tire patched.

Should You File an Insurance Claim?

It can be convenient and less expensive to purchase roadside assistance coverage as an add-on to your car insurance policy. But keep in mind that when you use your insurer’s plan — even for a flat tire — it can count as an insurance claim.

Though occasional use likely won’t cause your insurer to drop you or raise your auto insurance rates, if you make several roadside assistance claims over a short period, it could affect your overall policy. You might want to ask your insurance agent if multiple roadside assistance claims could be a problem. (And get it in writing if the answer is no.)

Do Insurance Policy Deductibles Apply to Roadside Assistance Claims?

Even with roadside assistance coverage, you could end up having to pay some out-of-pocket costs. And if your auto insurance policy has a deductible that applies to roadside assistance claims, you might have to pay that amount, as well. This could be another topic to cover with your insurance agent. (Read more about the different types of deductibles.)

Recommended: How to Lower Car Insurance

The Takeaway

Roadside assistance insurance can cover a range of problems you might have on the road — from fixing a flat tire to unlocking the car to jump-starting the battery.

Insurance companies typically offer roadside assistance as an add-on to an auto policy. Plans may look pretty much the same from one company to the next, but it can be a good idea to look beyond the basics to find the level of coverage and other benefits that are a good fit for your needs and budget.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

FAQ

What should I do if my tire is flat?

If you know how to change a tire and you can pull off the road to a safe place, you might want to tackle the job yourself. But if you aren’t prepared to DIY, you can call roadside assistance instead. A technician may be able to change your tire onsite and get you back on the road for free.

Will 911 help with a flat tire?

If your tire is flat and you’re in potential danger or blocking traffic, the safest move is to turn on your flashers and call 911 for assistance. The 911 dispatcher will then assess your situation and determine whether to send help. If you don’t feel you’re in danger or that your car has become a hazard to others, you can call your roadside assistance company’s toll-free number for help.

Can you drive a couple of miles on a flat tire?

Driving on a flat tire, even for a short distance, can further damage the tire and possibly the rim. If you can turn on your hazard lights and drive slowly to a safer location, that may be your best option, but you should try to limit the distance you travel.

How much does it cost to put on a spare tire?

If you have roadside assistance coverage, it may not cost you anything to have your flat tire replaced onsite with your spare.

Should you tip roadside assistance for a flat tire?

There’s no obligation to tip any service provider your roadside assistance plan sends to help you. However, just as with any service, if you feel that person went above and beyond, you may want to show your gratitude with a tip.


Photo credit: iStock/okugawa

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Does Paying for Your Car Insurance Build Credit?

Does Paying for Your Car Insurance Build Credit?

In most cases, paying for car insurance does not help build credit. This is mostly because car insurance is not an installment loan, so it isn’t reported to the major credit bureaus.

However, if your insurance account goes delinquent and is sent to collections, that could have a negative impact on your credit score. In this way, car insurance does have the potential to affect your credit score. Learn more about this important facet of your financial life.

Key Points

•   Paying car insurance typically does not build credit as it is usually not reported to credit bureaus.

•   Unpaid car insurance can negatively impact credit if sent to collections.

•   Credit scores affect car insurance rates, with lower scores leading to higher premiums.

•   Paying car insurance with a credit card requires budgeting to avoid interest.

•   Building credit involves timely bill payments, responsible credit card use, and possibly taking out personal loans to offset debt.

How Does Paying Car Insurance Work?

Like most types of insurance, how car insurance works is by making monthly (or annual) premium payments to the insurance company. Then, if you are in an accident that is covered by your policy, the insurance company may pay to repair or replace your vehicle, subject to the deductible listed on your policy. The medical costs related to injuries may be covered as well.

Every car insurance policy is different, so work with your agent to make sure you understand how your particular policy works.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

Paying Car Insurance With a Credit Card

Many insurance companies do allow you to pay for your car insurance with a credit card. However, it’s possible that your company may only allow payment by cash, check, or bank transfer.

If you do pay for your car insurance with a credit card, make sure that you are including that amount in your monthly budget. That way, you can make sure to have enough money in your bank account to pay your credit card statement in full.

How Your Credit Score Can Be Affected by Paying Car Insurance

While your regular and on-time car insurance payments likely will not have an effect on your credit score, that doesn’t mean your score can’t be impacted by paying car insurance. Specifically, your credit score can be affected by not paying your car insurance premiums. If your insurance agency sends your account to a debt collection agency, that could result in negative impacts to your credit score.

Does Paying Car Insurance Help Build Credit?

As we’ve mentioned before, paying your car insurance does not usually help with building credit. So if you’re hoping to do so, you’ll need to look at other avenues, like making regular on-time payments to your creditors. Additionally, paying off a debt affects your credit score by lowering your debt-to-income ratio and your overall credit utilization, so that could be another avenue to consider.

Factors to Consider When Paying Car Insurance With a Credit Card

The biggest factor to consider if you want to pay your car insurance with a credit card is whether or not your insurance company accepts credit card payments. While many insurance agencies do, some do not. If your agency does not take credit card payments, you’ll have to find an alternative way to pay your bill.

Additionally, you’ll want to make sure that you have the money budgeted to pay off your credit card balance in full when it comes due. That way, you’ll avoid accruing interest on your car insurance payment if you used your credit card to cover it.

Recommended: How to Avoid Interest On a Credit Card

Consequences of Missing a Car Insurance Payment

If you’re significantly late with a car insurance payment and your account is sent to collections, that can negatively impact your credit score. However, the biggest consequence of missing a car insurance payment is that you may not be covered if you get into an accident. Generally, car insurance covers you only if your premium payments are up-to-date.

Additionally, if you live in a state where car insurance is required and your insurance has lapsed, you may face civil or criminal charges.

Recommended: What Is a Charge Card?

Do Car Insurance Payments Appear on Your Credit Report?

Generally, car insurance payments do not appear on your credit report. This is in contrast to other types of recurring payments like mortgages or loans. However, if you make significantly late payments, your insurance company may report those late payments to the credit bureaus. This in turn could negatively impact your credit score.

Recommended: When Are Credit Card Payments Due?

Does Your Credit Score Impact Car Insurance Rates?

While paying your car insurance does not usually impact your credit score, the reverse is not true. Your credit score can (and often does) impact the rates that you are charged for car insurance.

A lower credit score can mean that your insurance premiums are higher. That is yet another reason to work on improving your credit score by following solid financial practices.

Factors That Determine Your Car Insurance Rate

Here are some of the major factors that can determine your car insurance rate:

•   Age

•   Gender

•   Make and model of your car

•   Location (ZIP code) where you typically park your car

•   Your driving habits, including how much you drive and your driving record

•   The type of coverage you choose, as well as the limits and deductibles

•   Your credit score

If you’re looking to lower your car insurance costs, making changes in some of the above areas can help. This could include improving your credit or driving record or reviewing your coverage needs.

Recommended: What is the Average Credit Card Limit?

Other Ways to Build Credit

Although paying your car insurance on time does not usually impact your credit, there are a few other ways you can build your credit.

Paying Your Bills On Time

One of the best ways to build your credit is by paying your bills on time, each and every month. Set up a budget and make sure that your monthly expenses are less than your monthly income. Work toward having an emergency fund to help cover you when you have unexpected expenses. Organize your bills and make sure that you pay them by their due dates.

Recommended: How Paying Off a Car Loan Affects Your Credit Score

Responsibly Using a Credit Card

Another way of establishing credit is by responsibly using a credit card. Most credit card payments and balances are reported to the major credit bureaus. Responsibly using a credit card and paying it off in full each month can help you build credit.

Additionally, some credit cards offer rewards, such as cash back rewards, with each purchase. Those rewards can serve as a bit of extra money each month to help you meet your financial goals.

Taking Out a Personal Loan

When potential creditors look at your credit report, many of them are looking for evidence that you can be trusted to pay your debts. If you don’t have many items on your credit report, lenders may not be sure if you’ll be responsible with additional debt. Taking out a personal loan (and then responsibly paying it back in full) can be one way to build your credit.

The Takeaway

While having and paying for car insurance is important if you drive a vehicle, it usually won’t have much of an impact on your credit score. However, if you don’t pay your insurance premiums when they’re due, your account might be sent to collections, which can negatively impact your credit score. If you’re looking for ways to build your credit, you might consider getting a personal loan or opening and responsibly using a credit card.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can unpaid car insurance affect my credit score?

Yes, unpaid car insurance can negatively affect your credit score. If you make significantly late payments, your insurance company might report the late payments to the credit bureaus. If your account becomes too delinquent, it may be sent to collections, further negatively impacting your credit score.

How does my credit score impact my car insurance rate?

Many insurance companies do consider your credit score and credit history when determining the rates you pay for car insurance. As with many financial products, having a good credit score can help you to pay lower monthly premiums for car insurance.

Can I get car insurance with low credit?

Yes, it is possible to get car insurance with low credit, though your monthly premiums may be higher than those of a similar applicant with better credit. If you’re looking at lowering your car insurance, one option is to build your credit score. You could accomplish this through paying down debt, examining your credit report for inaccuracies, or being more regular about making on-time payments to your creditors.


Photo credit: iStock/Believe_In_Me

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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What Does Flood Insurance Cover?

What Does Flood Insurance Cover?

Flood insurance is designed to help homeowners, renters, and business owners cover losses caused by a flood. You can buy it to protect a building, the possessions in that building, or both.

Most standard homeowners policies don’t cover flood damage. So this separate insurance coverage is your best option for repairing or replacing property after rising water rises enters your home. In some areas, mortgage lenders can make buying flood insurance mandatory. Even if your lender doesn’t require flood insurance, you may want to consider it.

Read on for information that can help you decide if a flood policy should be part of your insurance coverage.

Key Points

•   Flood insurance covers direct physical losses due to floods, including damage to the building and its contents.

•   Coverage extends to foundation walls, electrical and plumbing systems, and major appliances.

•   Personal property such as clothing, furniture, and electronics are also covered under flood insurance.

•   The National Flood Insurance Program offers up to $250,000 for building and $100,000 for personal property damage.

•   Flood insurance does not cover items outside the building, cars, or business interruption losses.

What Is Flood Insurance?

According to the Federal Emergency Management Agency (FEMA), just one inch of floodwater can cause up to $25,000 in damage. And that damage probably won’t be covered by your homeowners or renters insurance. You can, however, purchase a standalone flood insurance policy to help cover your losses.

A flood insurance policy is meant to cover losses directly caused by flooding or, as FEMA describes it, “an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties.”

If your sewer backed up after heavy rainfall, or rising inland or tidal waters flooded your property, the damage would likely be covered by flood insurance. But if the backup wasn’t caused by flooding, the damage wouldn’t be covered by flood insurance. (Whether it’s covered by your homeowners insurance depends on your individual policy.)

Most people get their flood policy through the National Flood Insurance Program (NFIP), which is managed by FEMA and works with a network of insurance companies across the country. But some private insurance companies also offer their own flood policies, which are not government-backed.

Recommended: Mortgage & Homeowners Insurance Definitions

What Is Included in Standard Flood Insurance?

The NFIP offers two types of flood insurance coverage: one that covers buildings and another that covers the owner’s or renter’s personal contents.

A policy purchased through the NFIP can reimburse up to $250,000 in building damage and typically covers:

•   Foundation walls, anchoring systems, and staircases

•   Detached garages

•   Electrical and plumbing systems

•   Furnaces and water heaters

•   Fuel tanks, well water tanks and pumps, and solar energy equipment

•   Appliances, including refrigerators, stoves, and built-in dishwashers

•   Permanently installed cabinets, paneling, and bookcases

•   Permanently installed carpeting and window blinds

An NFIP policy can provide up to $100,000 in personal property damage, and typically covers:

•   Personal belongings, such as clothing, furniture, and electronic equipment (TVs, computers, etc.)

•   Valuables (like original artwork and furs) up to $2,500

•   Portable and window air conditioners

•   Washers and dryers

•   Microwave ovens

•   Carpets that may not be included under building coverage

•   Curtains and other window coverings

What Doesn’t Flood Insurance Cover?

There are a few things NFIP flood insurance doesn’t cover, even if the damage is directly caused by flooding. Items that aren’t covered include:

•   Any property that’s outside the insured building (such as a well, septic system, deck or patio, fences, seawall, hot tub or pool, and landscaping)

•   Cars and most other self-propelled vehicles and their parts

•   Cash, coins, precious metals, stock certificates, and other valuable paperwork

•   Damage from mold or mildew that could have been prevented by the property owner

•   Financial losses caused by an interruption in business

Flood insurance also doesn’t cover costs incurred if you have to live in temporary housing because of damage to your property. Unfortunately, neither will the “loss of use coverage” you may have through your homeowners policy. (Loss of use coverage pays those expenses only when the reason you’ve been displaced is covered by your homeowners policy.)

What Does Flood Insurance Cover in the Basement?

The NFIP’s coverage for flood damage in the basement is limited to some specific (usually permanent or attached) items and cleanup. Some examples of what should be covered include:

•   Central air conditioners

•   Fuel tanks and the fuel in them

•   Furnaces and water heaters

•   Sump pumps, heat pumps, and well water tanks and pumps

•   Electrical outlets, switches, and junction and circuit breaker boxes

•   Elevators, dumbwaiters, and related equipment

•   Unfinished drywall for walls and ceilings

•   Attached stairways and staircases

•   Foundation elements and anchoring systems required for building support

Most personal property kept in the basement isn’t covered, including clothing, computers, TVs, and furniture.

Where Can You Get Flood Insurance?

Federal flood insurance isn’t sold directly by the federal government. Instead, you can buy NFIP policies through private insurance companies, under what’s known as a Write Your Own (WYO) program.

The NFIP partners with more than 50 insurance companies, so you may be able to work with the same insurance agent or broker who helped you purchase your home and auto policies to get flood coverage.

You can get help finding an NFIP provider online at floodsmart.gov/flood-insurance-provider or by calling the NFIP at 877-336-2627. You also can also check into any private, non-government-backed flood insurance policies that are offered in your area.

You may want to look at including flood insurance as part of your overall personal insurance planning. Don’t wait until you hear predictions of a storm heading your way to start inquiring about a policy, though. There is typically a 30-day waiting period for a flood insurance policy to go into effect.

How Much Does Flood Insurance Cost?

Like most insurance, the cost of a flood policy can depend on the coverage type (building and/or personal contents), the size and age of the building covered, the risk level in your location (based on your flood zone), and other factors, including whether you’re buying a private or NFIP policy.

According to the Federal Emergency Management Agency (FEMA), the average cost of one year of coverage with an NFIP policy is $786. And though that’s not nearly as much as the average cost of a homeowners policy, it can still be a hit to many household budgets.

You may be able to lower the cost of a flood policy by choosing a higher deductible. You can also elevate your home’s electrical panels, heating and cooling systems, and other utilities so they’re less vulnerable to water damage.

For renters, the NFIP offers contents-only policies for as low as $99 annually.

You can also look for a competitive quote on a private flood policy that isn’t backed by FEMA and the NFIP. Just make sure you’re getting a fair price from a stable company that is capable of paying out claims in the event of a major flood.

When Is Flood Insurance Required?

If you have a government-backed mortgage and your home or business is in a high-risk flood area, you are required to have flood insurance. If you don’t have a government-backed loan, your lender may still require that you purchase a flood policy. Even lenders in moderate- to low-risk locations may make it a loan requirement.

Recommended: Is Homeowners Insurance Required to Buy a Home?

Who Should Buy Flood Insurance?

Knowing your designated flood zone can help you decide whether you want to prioritize purchasing flood insurance. You can find your zone by entering your address at the FEMA Flood Map Service Center at MSC.FEMA.gov.

Structures in zones A and V are at the highest risk, while those in zones B, C, and X are considered at moderate to minimal risk. Keep in mind, though, that you can still experience flood damage even if you don’t live in a high-risk zone. According to NFIP data, more than 20% of all insurance claims come from moderate- to low-risk zones.

If you’re moving to a new area where flood insurance isn’t required, you may want to speak with your real estate agent or neighbors about the area’s history and potential for flooding.

How Much Flood Insurance Do You Need?

In many ways, shopping for flood insurance is similar to how you buy homeowners insurance: Calculating how much you’ll need will depend on what you plan to protect and what it might cost to replace if it’s destroyed.

In fact, whether you go with an online insurance company or a traditional insurer, your homeowners insurance company may give you an idea of what it might cost to rebuild or repair your home if it’s damaged. Then you can add on the value of your furnishings and other personal possessions to decide how much flood insurance you need. (If you’re a renter, you can purchase a policy that covers only your belongings.)

Remember, there are limits to how much coverage you can get through an NFIP policy ($250,000 for a building and $100,000 for the contents). If your needs go beyond those limits, you may want to consider buying excess flood insurance through a private flood policy.

The Takeaway

An average flood insurance policy for homeowners costs $786 a year. But most homeowners insurance policies don’t cover flood damage, which can leave a big gap when it comes to protecting your home and belongings. Purchasing a separate flood insurance policy can help fill that gap, and it can be an important part of your overall insurance planning.

Flood policies can cover the building itself, its contents, or both. Make sure you understand what isn’t covered by your policy, such as personal belongings stored in the basement or outside.

If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.

SoFi brings you real rates, with no bait and switch.

FAQ

What losses are covered by flood insurance?

A flood insurance policy covers direct physical losses caused by a flood. That could mean repairing or replacing your home, or the furnishings and other belongings in your home, or both.

How do I know if I’m in a flood zone?

Everyone is in a flood zone, but some areas are at a higher risk than others. You can find your zone by entering your address at the FEMA Flood Map Service Center at MSC.FEMA.gov.

Is flooding covered by homeowners insurance?

Some types of water damage are covered by a standard homeowners policy, but flooding usually is not.


Photo credit: iStock/onurdongel

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