Who must Buy Flood Insurance

Insurance is generally chosen by individuals who feel that a risk is worth insuring against. When it comes to insuring ones home it is difficult to obtain flood insurance even though the costs of flood related damage can be exorbitantly high. General household insurance cover does not provide flood coverage, which must be obtained separately from private insurers who deal with NFIP.

The National Flood Insurance Program is a federally backed insurance cover which is funded by insurance premiums. Coverage comes at a set price so there is no need to comparison shop for preferential rates. It is determined by the level of risk which a property is assessed at within a certain area, be it coastal, a flood plain or near a river, or any other determined risk area.

Flood insurance is also available in areas which are considered low risk, and premiums will generally be lower than in high risk areas. It is available to homeowners, renters and businesses and generally provides cover in the region of $250,000 for buildings and $100,000 for contents.

Although in theory anyone can apply for flood insurance it is limited to those who live in a community which participates in flood management programs. Communities which do voluntarily participate in this program are required to “comply with the minimum regulatory standards of the NFIP”. The more a community complies with the program and the more measures it takes, the lower the premiums offered within the community. The more precautions taken, the less risk of intensive damage if a flood does occur.

Whilst flood insurance is a sensible precaution for households to have, particularly if in high risk areas, it is not generally compulsory. However some lenders will make it a requirement of obtaining a mortgage, which makes it essential that there is some community participation in NFIP. Often federal lenders or insurers will make flood insurance a condition of households receiving grants or mortgage loans. It is a requirement of those who receive federal disaster assistance after flooding that they must have flood insurance.

Although in some cases flood insurance is a necessary requirement of the homeowner in order to obtain a mortgage loan, it is not always possible to do so, even when an area is community compliant. Congress is responsible for renewing the Act which covers flood insurance and there are instances when there are periods when flood insurance is not obtainable as Congress has failed to rubber stamp the paperwork.

Those who do elect to take flood insurance should be aware that there is a thirty day period before the insurance cover becomes operative. Thus if flood insurance is a must to satisfy the mortgage lender it may well delay the funding available.

Sources: pueblo.gsa.gov