Flood insurance is a separate policy that covers your home and belongings against flood damage. It’s required for homeowners in communities that participate in the National Flood Insurance Program (NFIP) and are mapped into special flood hazard areas. Many commenters noted that NFIP policies are expensive, and private insurance may offer greater coverage at lower rates.
Types of Coverage
Flood insurance is a standalone policy that covers damage to your home and property from flooding. It is separate from homeowners or hazard insurance, and lenders typically require it when purchasing homes in certain risk areas. Homeowners’ insurance often doesn’t cover damage from floods, even if the property is in a high-risk zone, so it’s crucial to have flood coverage. Buyers need to understand that a flood can be caused by many things, including surface water runoff, changing weather patterns that cause overflow of inland or tidal waters, wildfire, and mudflows. A homeowner can purchase a standard NFIP policy covering the building or a contents-only policy covering only your belongings. Some homeowners buy an excess policy that adds more coverage than their base NFIP policy. That is why it is necessary to check and understand the policy by reading flood insurance information thoroughly.
If you’re buying a home in a high-risk flood zone, you’ll likely be required to have a mortgage that the NFIP insures. The federal government considers flooding one of the country’s most common and costly natural disasters, and homeowners insurance typically doesn’t cover it. Lenders also require it because a property destroyed by a flood can’t be paid off in full by the homeowner without insurance coverage. Lenders want to be sure that their loan will be repaid even if a disaster destroys the property, and they want their borrowers to avoid getting stuck with a mortgage that they can’t pay back.
However, the requirement for a mortgage backed by the NFIP only applies to people living in high-risk areas. It applies to anyone who wants a loan from the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or other federally sponsored entities. The good news is that several things can be done to mitigate the risk of flooding and thus reduce the need for insurance. For example, putting utilities into the ground and elevating a house above its area’s base flood elevation can help protect it from damage.
The NFIP reduces the impact of flood damage by providing affordable insurance to property owners and encouraging communities to adopt and enforce floodplain management regulations. The program is self-supporting, meaning it is not paid for by taxpayer dollars but collects premiums from policyholders. The NFIP also provides mitigation grants to help communities prevent or reduce future flood damages.
Residential and non-residential property owners can purchase NFIP policies to protect their buildings and contents from flood damage. A standard NFIP policy covers up to $250,000 for building damages and $100,000 for contents. For larger properties, excess coverage is available from private insurers. All NFIP policies have a 30-day waiting period before coverage takes effect. During this time, the property owner can still be affected by floods and may need repair or replacement assistance. NFIP provides numerous resources for consumers, agents, and others involved in selling and servicing NFIP policies. Find reports on the NFIP’s financials, guidance on conducting daily operations, the Write-Your-Own program, reinsurance, Risk Rating 2.0, and more. NFIP partners with communities, the insurance industry, and lenders to reduce the loss of lives and property caused by flooding. Homes complying with NFIP standards suffer less damage than those built outside the mapped Special Flood Hazard Areas (SFHA). The NFIP’s mitigation activities save society an average of $1.1 billion yearly in flood damages.
Choosing a Policy
Flood insurance isn’t included in homeowners insurance and can be purchased separately. The cost isn’t prohibitively high, and it can save a homebuyer in the long run if they need to pay for costly repairs after flooding. And that’s why many lenders require mortgaged homeowners to purchase this coverage. The cost of flood insurance varies by the property’s location and risk level and by whether you opt to obtain a policy through the NFIP or private insurers. NFIP policies typically cost more than those from private insurers, but they also offer more coverage, as much as the home is worth. Private insurers may need help to afford the financial responsibility of paying out claims for such large amounts of money, so they usually limit the coverage they provide to homes in high-risk areas.
Homebuyers can lower their premiums by reducing their flood risk through mitigation efforts, such as installing flood openings and filling basements or elevating utilities. However, this can be expensive, so buyers should carefully weigh their options before pursuing mitigation. Most flood insurance policies cover the building structure and its contents, including appliances and furniture. There are separate deductibles for the building and the contents, so it’s essential to understand how much your personal belongings are worth to ensure you have enough coverage.