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Flood Insurance 101

What is Flood Insurance?


Standard homeowner insurance policies do not cover damage from flood water. As a result, property owners can purchase supplemental insurance to cover flood damage.


What is NFIP Insurance?


NFIP Insurance is actually an offshoot of the National Flood Insurance Program (NFIP) established by Congress in 1968. The program has evolved over the years in response to the devastation caused by natural disasters such as Hurricane Katrina in Louisiana. NFIP is regulated by the Federal Emergency Management Agency (FEMA).


As you can imagine, there are areas of the country that have a greater chance of flooding than others. For example, properties that are located in coastal areas or along rivers can expect to experience water damage from heavy rain and winds more than a property located in the dry Arizona climate.


How Does the NFIP Program Help?


The purpose of NFIP is to reduce the impact of flooding on real property. The program does this in two ways. First, they encourage the communities most susceptible to flooding to require floodplain management strategies in order to mitigate damage from flooding.


The second way NFIP helps is to help provide affordable insurance against flooding to property owners in these floodplain areas. FEMA does this by teaming up with private insurance providers to spread the risk of insuring properties in NFIP identified floodplain areas.


What Does it Mean to Spread the Risk?


Let’s say you purchase a home in an identified floodplain. You purchase NFIP insurance through a private insurance provider similar to your homeowner’s insurance. Then, the worst happens and your home is damaged by a flood.


When you file a claim for the damage, a portion is paid by the private insurance provider and a portion by the NFIP. This spreads the risk of loss between the government and the insurance providers, making the insurance premiums more affordable.


If you own a property in an NFIP flood plain, you will be required to obtain NFIP insurance by your lender. Even if you aren’t in a flood plain, however, you should consider obtaining insurance against floods. You may find it worth the peace of mind knowing you are covered.

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