What is it and why you might need it
If you are looking to purchase a property in a flood zone your lender may require you to obtain flood insurance before you can close on the property. Homeowners insurance does not cover flood damage and according to The National Flood Insurance Program “just a few inches of water can cause tens of thousands of dollars in damage”.
Property purchased in a high risk flood zone using a federally regulated or insured mortgage will be required to have flood insurance. In most cases the policy will have to be maintained until the mortgage is paid off. This is because the lender often has greater financial stakes in a home that is financed than the buyer. Flood insurance helps prevent the risk of a homeowner ceasing mortgage payments and walking away from a flood damaged property thereby protecting the lender.
Look up any property to see if it is in a flood zone here.
How it works, and how it affects your mortgage
Like other insurance products the insured pays a premium based on risk and chosen deductible. To utilize the insurance the insured files a claim and receives the finances needed to pay for the repairs after the deductible. The cost of the policy can often be integrated into the buyer’s monthly mortgage payment by the lender in a manner similar to property tax and hazard insurance. Exact cost of a policy will need to be obtained from an insurance agent. Effective July 2019, the 2012 Biggert Waters Act provision was implemented requiring federally regulated lending institutions to accept private flood insurance policies that meet certain statutory criteria. Find out how to buy flood insurance here.
What it covers
Be sure to review with your chosen policy writer what is and is not covered by your flood insurance. Many policies only cover items considered to be part of the building’s structure as specified by FEMA. Personal property coverage may be needed to cover the cost of many important and expensive things not considered part of the building’s structure such as personal belongings, washers and dryers, valuable papers, as well as property and belongings outside of a building. Find more details on what flood insurance covers here.
For more resources and to see flood maps visit these government official websites.
Written and Researched By: Victoria Buckwash