If your home or business is located in an area considered to be at risk for flooding, your mortgage lender will require you to carry flood insurance quotes. In fact, mortgage lenders that are federally regulated or insured are required by federal law to make flood insurance on structures in high flood risk areas mandatory. Mortgage lenders can require flood insurance even if your building is not in a high risk area. However, homeowner's insurance does not provide coverage for flood damage. You will need to purchase a separate flood insurance policy to provide financial protection against the damage done by rising waters. When storm surges inundate coastal areas or rivers spill over their banks, property damage can be widespread and run into millions of dollars. According to the federal government, in 2014, flood damage claims payments in Texas alone totaled $13,808,268. Only three states had more flood insurance claims that year than Texas.
Insurance companies are understandably reluctant to take on such enormous risk. Nearly half a century ago, the United States Congress established the National Flood Insurance Program (NFIP) to make flood insurance policies available to individuals and businesses throughout the country. Here's how it works. The NFIP makes flood insurance available to cover homes and business establishments in special flood hazard areas. The Federal Emergency Management Agency, FEMA, designates areas that have a one percent chance of flooding in any given year as special flood hazard areas. That means that during the life of a 30-year mortgage, there is roughly a 25% chance of flooding. Most of the floodplains in the country have been mapped and assigned a flood risk rating. For you to obtain flood insurance through NFIP, your community must participate in the program and take certain measures mandated by FEMA to reduce the risk of flooding.
Please be aware that with very few exceptions, there is a 30 day waiting period before a new flood insurance policy goes into effect. Without a waiting period, you can imagine the rush to buy flood insurance when there is news that a hurricane is about to make landfall on the Gulf coast!. FEMA administers NFIP, working closely with a large network of insurance companies. No matter which insurance company you buy flood insurance through, the rate structure is the same because the rates are set nationally. How much you will pay for your flood insurance policy depends on the age and construction of the building, its specific level of risk, and whether you choose to insure only your building or the building plus its contents.