If my home is flooded, won't federal disaster assistance pay for my damages?
Not necessarily. Federal disaster assistance typically comes in the form of a low interest loan to help cover flood damage, not compensation for your losses. Even then, those loans are only available if the president formally declares a disaster and must be repaid along with any existing mortgage.
Am I eligible for flood insurance? You must live in a community that participates in the National Flood Insurance Program (NFIP) to qualify for National Flood Insurance. Find out if your community participates in the NFIP and the kinds of NFIP resources available in your community by contacting your insurance agent.
Can I get flood insurance if I'm renting a property? If you live in a community that participates in the NFIP, you can get flood insurance to cover the contents of your home or business.
I live in a low-risk flood zone. Do I really need flood insurance? Most likely, yes. It's a good idea to buy flood insurance even if you live in a moderate- or low-risk area. Anyone can be financially vulnerable to floods. People outside of high-risk areas file over 20% of NFIP claims and receive one-third of disaster assistance for flooding. When it's available, disaster assistance is typically a loan you must repay with interest. You may qualify for the Preferred Risk Policy (a lower-cost flood insurance policy) that provides contents coverage beginning at $49 per year and building plus contents coverage beginning at $129 a year.
Why do I need flood insurance, even though my community has never been flooded? Flooding occurs in moderate-to-low risk areas as well as in high-risk areas. Poor drainage systems, rapid accumulation of rainfall, snowmelt, and broken water mains can all result in flood. Properties on a hillside can be damaged by mudflow, a covered peril under the Standard Flood Insurance Policy. Structures located in high-risk flood areas have a significant chance (26 percent) of suffering flood damage during the term of a 30-year mortgage. In a high-risk area, your home is more than twice as likely to be damaged by a flood than by fire. For these reasons, flood insurance is required by law for buildings in high-risk flood areas as a condition of receiving a mortgage from a federally regulated or insured lender.
Why does my mortgage lender require me to buy flood insurance? Under federal law, the purchase of flood insurance is mandatory for all federal or federally related financial assistance for the acquisition and/or construction of buildings in high-risk flood areas (Special Flood Hazard Areas or SFHAs).
The amount of flood insurance coverage required by the Flood Disaster Protection Act of 1973, as amended by the National Flood Insurance Reform Act of 1994, is the lesser of the following:
1. The maximum amount of NFIP coverage available for the particular property type,
2. The outstanding principal balance of the loan, or
3. The insurable value of the structure.
If the property is not in a high-risk area, but instead in a moderate-to-low risk area, federal law does not require flood insurance; however, a lender can still require it. It is also recommended since historically one-in-five claims come from these moderate-to-low areas. Note that if during the life of the loan the maps are revised and the property is now in the high-risk area, your lender will notify you that you must purchase flood insurance.
Is there a low-cost policy for homes in moderate-to-low risk areas? Yes. The Preferred Risk Policy is available in moderate-to-low risk areas for as little as $129 per year.
I'm not in a high-risk area, but I'd like flood coverage. Is this possible? Yes! You are eligible to purchase a flood policy with the same coverage you would receive if you lived in a high-risk area. That is, of course, as long as your community participates in the NFIP. And you may qualify for the Preferred Risk Policy (a low-cost flood insurance policy) that provides contents coverage for as little as $49 per year and for as little as $129 per year for both building and contents coverage.
I live in a high-risk risk area. After my home was damaged in a flood, I received federal disaster assistance. Do I need to purchase flood insurance now? Yes. If you live in an SFHA and have received disaster assistance in the form of a federal grant or loan, you must cover the building for flood insurance for as long as you own it. Should you sell the building, you are required to inform the new owner of the necessity to purchase and maintain flood insurance. Failure to carry flood insurance could result in the denial of future federal disaster assistance.
Who do I contact if I want to purchase a flood insurance policy? The National Flood Insurance Program has an arrangement with private insurance companies to sell and service flood insurance policies. Ask your insurance agent to see what NFIP flood insurance policies are available to you.