Understanding Flood Insurance
General homeowner’s insurance policies exclude coverage from damage caused by flooding. In most instances, if you want your home covered for flood damage, you will need to purchase supplemental insurance. If your home is in a high-risk area for floods, the supplemental insurance is available through the National Flood Insurance Program (NFIP), which was established by Congress in 1968.
What is NFIP?
NFIP Insurance originated in response to the devastating damage that hurricanes and other natural disasters cause to real property. The Federal Emergency Management Agency (FEMA) regulates the NFIP.
The goal of the NFIP is to reduce the wreckage of flooding on real property. This objective is achieved through two main initiatives. First, FEMA encourages communities located in flood prone areas to adopt floodplain management strategies such as watershed and other geographical oversight.
Secondly, the NFIP program helps to provide cost-effective insurance against flooding to homeowners in flood-susceptible areas.
Before FEMA established the NFIP program, private insurance companies were reluctant to insure against flood, and as a result, natural disasters caused huge amounts of uninsured destruction that the government had to mitigate.
NFIP Flood Insurance was established to allow FEMA to team up with the insurance providers to spread the risk of insurance against flood damage in NFIP identified floodplains.
Individuals living in identified floodplains will purchase insurance through a private insurance company, but in the event their home is damaged by flood, a portion of the claim is paid by the NFIP. This helps spread the possible loss exposure in high-risk areas, making the insurance more affordable to you, the homeowner.
Mortgage lenders will require you to obtain NFIP insurance if your home is in an NFIP floodplain area. The insurance is available, however, even if the property has not been identified as high risk. When purchasing your property insurance you may find the extra premium worth it to ensure peace of mind in a flood situation.