Making Sense of the Flood Insurance Requirements for Homebuyers and Homeowners
Standard homeowners insurance does not cover damage from flooding, primarily because it is so expensive. For many homeowners, it’s also not necessary.
That’s not the case with homes and properties situation in a designated flood zone. For owners of valuable homes and real estate in flood zone or flooding-prone areas, having adequate flood insurance is a smart idea.
Plus, if you want to have mortgage loan financing on your property, you will also need to purchase flood insurance coverage for it. And it will be expensive.
Properties located in a designated flood zone require flood insurance coverage, in addition to the standard hazard insurance coverage requirement, because mortgage lenders face a greater risk of loss by lending on those properties.
The Federal Emergency Management Agency (FEMA) is the agency responsible for maintaining the flood map of designated flood zones. The agency periodically updates flood zones to identify areas with a propensity for flooding.
These periodic updates add a bit of uncertainty for all homeowners, especially those whose properties are located next to a flood zone..
Just because the subject property is not currently in a flood zone, it does not mean that it will not be located in one by a subsequent FEMA re-mapping. If such a re-designation does occur while the homeowner still has a mortgage loan lien against it, the mortgage lender will require you to obtain flood insurance coverage at that time.
This new flood insurance requirement will double (and sometimes triple) the homeowner’s insurance premiums.
If flood insurance is required, most homeowners obtain flood insurance coverage through the National Flood Insurance Program (NFIP). The NFIP was established by Congress in 1968 to assist property owners in obtaining coverage against flood losses. These programs were made available to homeowners whose community participated in NFIP’s flood-control programs. However, in recent years, FEMA has made a concerted effort to dissuade development in flood-prone areas — because of the increased losses from flood coverage.
Flood zones are typically found along waterways and lowland areas. However, floods are not always caused by natural disasters—as evidenced by the 1993 flood in downtown Chicago, which was caused by human error. Some floods may also occur with backed-up sewer systems after a severe rain storm.
Homeowners should examine their hazard insurance coverage to clarify what coverage it offers against unforeseen flooding (such as a sewer back-up) or other disasters such as hurricanes, tornadoes and earthquakes.
If you purchase your home in a neighborhood with a history of sewer backups and flooding after severe rain storms, you may want to consider purchasing a flood insurance rider — even if your property is not in a designated flood zone.
