Fema: Flood Insurance And Life-Of-Loan Monitoring Explained

Floods can happen anywhere and can cause tens of thousands of dollars in damage. In the US, the National Flood Insurance Program (NFIP) provides insurance to help reduce the socio-economic impact of floods. The NFIP is managed by the Federal Emergency Management Agency (FEMA) and delivered to the public by a network of more than 50 insurance companies. FEMA requires applicants who receive assistance to purchase flood insurance for future flood damage to any insurable property. This insurance is available to anyone living in one of the almost 23,000 participating NFIP communities. However, it is not clear whether FEMA provides life-of-loan monitoring for flood insurance.

The National Flood Insurance Program (NFIP)

The NFIP was established by Congress in 1968 through the National Flood Insurance Act of 1968. The program has two main purposes: to share the risk of flood losses through insurance and to reduce flood damage by restricting floodplain development. The NFIP enables property owners in participating communities to purchase government-administered insurance protection against flood losses. Flood insurance is available to anyone living in one of the nearly 23,000 participating NFIP communities. The program also requires flood insurance for all loans or lines of credit secured by existing buildings, manufactured homes, or buildings under construction located in Special Flood Hazard Areas (SFHAs) in participating communities.

The NFIP provides two types of coverage: building coverage and contents coverage. Building coverage protects against direct physical losses to the structure of a building, while contents coverage protects belongings within the building. The cost of coverage depends on various factors, including the location of the property, the type of building, its age, and its construction.

The NFIP is a critical program for reducing the socioeconomic impact of floods. Floods can occur anywhere and cause significant damage, with just one inch of floodwater potentially causing up to $25,000 in damage. Standard homeowners' insurance policies typically do not cover flood damage, making the NFIP a vital source of protection for individuals and businesses. By providing flood insurance, the NFIP helps policyholders recover faster when floodwaters recede.

In addition to insurance coverage, the NFIP also works with communities to adopt and enforce floodplain management regulations that help mitigate the effects of flooding. The Mitigation Division within FEMA manages the NFIP and oversees the floodplain management and mapping components of the program. FEMA defines the floodplain as the area that would be flooded by a base flood, which is a flood with a 1% chance of occurring in any given year.

Lenders requiring flood insurance

If you have a mortgage and live in a high-risk flood area, you are required by federal law to have flood insurance. This is especially the case if your mortgage is backed by the government or a government-sponsored enterprise (GSE) such as Fannie Mae or Freddie Mac. In this case, flood insurance is mandatory if your house is located in a Special Flood Hazard Area (SFHA) or an area with a 1% chance or more of flooding. These areas are also known as 100-year flood zones.

The National Flood Insurance Act (NFIA) of 1968 and the Flood Disaster Protection Act (FDPA) of 1973 created regulations mandating that all mortgage lending companies backed by Fannie Mae or Freddie Mac require flood insurance for homes in these areas. Private lending companies often have similar requirements for their borrowers, even though it is not legally required.

Mortgage companies require flood insurance because they have a financial stake in the property. If a house is destroyed by a flood and the homeowner decides to abandon the property and stop making payments, the mortgage company would be left with a worthless asset. Flood insurance mitigates this risk.

The amount of flood insurance you need depends on the rebuilding cost of your property or the maximum coverage available. You may need more than the minimum coverage to fully protect your home and possessions. The rebuilding cost is determined by the cost of materials and labour in your area and may differ from year to year. The maximum limit depends on whether you choose a federal or private flood insurance policy. Coverage from the National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA), typically cannot exceed $250,000 for the structure of your home and $100,000 for personal property. Private flood insurance companies can provide much higher limits.

If you live in a high-risk flood area and have received federal disaster assistance, such as grants from FEMA or low-interest disaster loans from the US Small Business Administration (SBA), you must maintain flood insurance to be considered for future federal disaster aid.

Even if you are not required to have flood insurance, it is still a good idea to consider purchasing it for the protection it offers. Flood insurance will pay claims regardless of whether there is a Presidential Disaster Declaration, and federal disaster assistance may not cover all your losses.

How to obtain flood insurance

The National Flood Insurance Program (NFIP) is managed by the Federal Emergency Management Agency (FEMA) and delivered to the public by a network of more than 50 insurance companies and the NFIP Direct. Flood insurance is available to anyone living in one of the almost 23,000 participating NFIP communities.

To obtain flood insurance, you can call your insurance company or insurance agent, the same person who sells your home or auto insurance. If you need help finding a provider, you can use the NFIP insurance provider locator to find one near you.

It is important to plan ahead as there is typically a 30-day waiting period for an NFIP policy to go into effect, unless the coverage is mandated, purchased as required by a federally backed lender, or is related to a community flood map change.

When purchasing flood insurance, it is also worth considering the following:

• What does a typical flood insurance policy cover?: Flood insurance policies only cover damage from natural flooding, not from an overflowing toilet or broken pipe. FEMA defines a flood as when at least two acres of normally dry land are covered in standing water due to natural events or when standing water occurs due to a collapse of land along the shoreline of a natural body of water.
• Building property coverage: This type of coverage provides financial protection in the event that your house, electrical and plumbing systems, central AC, refrigerators and built-in appliances, and permanently installed carpeting incur damage. Building coverage is capped at $250,000 for an NFIP policy and has a $1,000 baseline deductible.
• Personal property flood coverage: This covers most personal belongings or anything inside the house up to $100,000, including clothing, furniture, portable air conditioners, carpets not included in building coverage, food freezers and the food in them, and valuables like artwork and fur (up to $2,500).
• Discounts: While flood insurance policies do not have the same common discounts as homeowners insurance, there are still flood insurance discounts available. Depending on the building structure and the rating categories designated by FEMA, you may qualify for one or more flood insurance discounts with the NFIP. Generally, the higher the building is off the ground, the lower the flood risk and the greater the discount. You may also be eligible for a discount if you are part of any FEMA programs or ratings groups, such as the Emergency Program or the Community Rating System (CRS).
• Rental-specific flood insurance coverage: Renters can get a policy through the NFIP that will cover the contents of their rental up to $100,000. The cost of the policy will depend on where you live, the floor you live on, and the flood risk to the property. If you are located in a low- to moderate-risk area, you may qualify for a Preferred Risk Policy, which will likely be cheaper than a higher-risk policy.
• Private flood insurance: Some home insurance companies may partner with the NFIP and a private insurance company. You can reach out to a private flood insurance company directly or speak with an independent insurance agent to get private flood insurance quotes. Private flood insurance policies are often sold by specialty carriers that an independent agent may have access to. Private flood insurance premiums are not preset like NFIP premiums, so costs may vary depending on your coverage needs. Private flood policies sometimes offer higher coverage limits and shorter waiting periods than NFIP policies.
• Which is better: private flood insurance or an NFIP policy?: This depends on your needs. If the $250,000 building limit offered by the NFIP is enough coverage for you, and your community participates in the program, then the government-backed policy may be best. If you need higher coverage limits and want to insure your personal property at its replacement cost value, then a private policy may be better.
• Cost: The average annual cost of flood insurance through the NFIP is $800. However, with FEMA's Risk Rating 2.0 program, flood insurance premiums are increasing steadily in most areas, with the full risk-based average cost being $1,808 per year. Private insurers' rates vary based on factors like flood zone, home age, construction, coverage limits, and deductible level.
• Do I need flood insurance?: Flood insurance is not state-mandated, but you may be required to purchase a policy if you have a mortgage and live in or near a high-risk flood zone. Even if you own your home outright, having flood insurance may help prevent financial strain in the event of flood damage. You can assess your home or building's risk level by checking FEMA's flood map and speaking with a licensed agent.

What does flood insurance cover?

The National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA), provides flood insurance to help reduce the socio-economic impact of floods. Flood insurance is a separate policy that can cover buildings, the contents within a building, or both.

The NFIP offers two types of coverage: building coverage and contents coverage. Building coverage includes electrical and plumbing systems, furnaces and water heaters, refrigerators, cooking stoves, and built-in appliances like dishwashers. It also covers permanently installed items such as carpeting, cabinets, paneling, bookcases, foundation walls, anchorage systems, and staircases. Additionally, it protects fuel tanks, well water tanks and pumps, and solar energy equipment.

Contents coverage, on the other hand, protects personal belongings such as clothing, furniture, electronic equipment, portable and window air conditioners, and valuable items such as original artwork and furs (with a limit of $2,500). It is important to note that flood insurance does not cover temporary housing expenses or property outside of the insured building, such as landscaping, decks, and fences.

In the event of a flood, the NFIP policy covers direct physical losses to your structure and belongings. Flood insurance is available to anyone living in one of the almost 23,000 participating NFIP communities, and it is required for homes and businesses in high-risk flood areas with government-backed mortgages.

FEMA assistance and flood insurance

The National Flood Insurance Program (NFIP) is managed by the Federal Emergency Management Agency (FEMA) and delivered to the public by a network of more than 50 insurance companies and the NFIP Direct. The NFIP provides flood insurance to property owners, renters, and businesses, helping them recover faster when floodwaters recede.

The NFIP works with communities required to adopt and enforce floodplain management regulations that help mitigate flooding effects. Flood insurance is available to anyone living in one of the almost 23,000 participating NFIP communities. Homes and businesses in high-risk flood areas with mortgages from government-backed lenders are required to have flood insurance.

FEMA assistance is not meant to replace insurance. FEMA regulations require applicants who receive FEMA assistance to purchase flood insurance for future flood damage to any insurable property. This requirement applies only to the building and personal property that is, or will be, in a designated Special Flood Hazard Area (SFHA) that can be insured under the NFIP.

Applicants who live in a designated SFHA and receive Individuals and Housing Program (IHP) assistance for Home Repair, Replacement, Permanent Home Construction, or Personal Property must purchase and maintain flood insurance coverage for at least the amount of disaster assistance they receive from FEMA, if it is available.

Flood insurance coverage must be maintained at the address for as long as the address exists and for at least the assistance amount awarded for flood-damaged, NFIP-insurable losses. If the home is sold, the requirement to purchase and maintain flood insurance carries over to any future owner.

Applicants who do not purchase and maintain flood insurance will be ineligible for IHP assistance for flood-damaged real or personal property in future disasters with flood-related damage. However, survivors who failed to purchase and maintain flood insurance may still be eligible for other forms of assistance through FEMA, including referrals to local community partners, medical and dental assistance, transportation assistance, and critical needs assistance.

To purchase flood insurance, individuals can call their insurance company or insurance agent or find a provider at FloodSmart.gov/flood-insurance-provider. There is typically a 30-day waiting period for an NFIP policy to go into effect.

FEMA's website provides a wide range of resources, including publications, videos, graphics, and online tools, to help policyholders, agents, and other servicers navigate the flood insurance process before, during, and after a disaster.

Frequently asked questions