Do I need the National Flood Insurance Program?
The National Flood Insurance Program is designed to fill an important gap in homeowner protection. Homeowners often have a false sense of security that their homeowners insurance policy will protect their houses and belongings in the event of a flood. This misinterpretation of policy coverage is understandable: floods often occur after a hurricane or other severe storm. Many people incorrectly assume the flooding that occurs as part of a weather event is covered just like any of the other damage the storm may produce. However, that is not the case. In short, your house may be covered for wind damage, fallen tree mishaps and lightning strikes, but not for water damage caused by flooding. Unfortunately, flood damage also is among the most costly to repair.
What is the National Flood Insurance Program and What Does it Cover?
To protect homeowners, in 1968 Congress passed a law that formed the National Flood Insurance Program, NFIP for short. The program affords property owners across the United States the opportunity to purchase a special policy to protect them, financially, from flood losses. National Flood Insurance Program policies provide homeowners with peace of mind, knowing that they will have the means to repair or replace just about every aspect of their houses, buildings and belongings. Coverage extends not only to the building and its foundation, but also to its electrical and plumbing systems, central heating and air conditioning units, furnaces, water heaters, appliances and carpeting that is permanently installed over unfinished flooring. Contents coverage protects you from losses of items that would cost you tens of thousands of dollars to replace, including clothing, furniture, electronic equipment, removable appliances like microwaves, washing machines and clothes dryers, as well as window treatments and rugs.
Is National Flood Insurance Program Coverage Required or Optional?
All federally regulated and insured mortgage lenders require flood insurance on properties in high-risk flood areas. Before you buy a property, you can determine its risk of flooding by inquiring with the county or city planning office. Properties in high-risk flood areas have a 26 percent chance of sustaining flood damage over the course of a 30-year mortgage than properties in lower risk areas. However, you may consider securing a policy through the National Flood Insurance Program even if you are in a low- to moderate-risk area. Flooding may occur in any area at any time, and more than 20 percent of National Flood Insurance Program claims comes from property owners in low- to moderate-risk areas. In addition, one-third of federal disaster assistance claims for flood damage come from property owners who live in lower-risk areas. Renters may purchase a National Flood Insurance Program policy to cover their personal property within a rental house or apartment.
Who Oversees the National Flood Insurance Program?
The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance Program. However, the federal government does not sell the policies nor pay for claims. FEMA flood insurance works with private insurance companies who provide the policies at consistent rates in each area. There is no need to shop around; the price you will pay through one company is the price you will pay to any other insurance company. Rates do vary, however, to accommodate each property’s unique features and level of risk. If you live in a low- to moderate-risk area, you may qualify for special, lower premiums. The National Flood Insurance Program is available to property owners in each community that has signed up and agreed to enforce sound floodplain management standards that reduce the risk of flooding.
Take the time to learn more about your risk and inquire about the National Flood Insurance Program through a federal flood insurance agent (an agent certified and licensed to sell flood insurance); you may just find it an easy and affordable way to gain additional peace of mind.