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Is Flood Insurance Mandatory?

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Reviewed byJoel Ohman
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UPDATED: Mar 13, 2020

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The short answer is no, assuming you don’t have a mortgage/loan on the associated property.

It May or May Not Be Required

  • If you pay for your property in cash or its free and clear
  • Flood insurance may be optional coverage
  • But if you take out a mortgage in order to purchase your home
  • The determination is made by the lender using a flood cert

If you do not have a mortgage, you do not need to buy flood insurance – but a bank can force coverage and essentially make it mandatory to protect their interest in your property until any and all loans are paid off.

This is largely because they “own” most of the property if you only came in with a nominal down payment, such as 5-10%.

There’s a lot of risk and they’ll ensure they are protected in the event of a flood or similar destruction.

Of course, flood insurance will only be mandatory if it’s determined that your financed property is located in a flood plain, or special flood hazard area (SFHA).

This is basically defined as an area that is at high-risk of flooding.

Flooding Is the Most Common Natural Disaster

  • Most common natural disaster according to FEMA
  • Insurance companies often exclude natural disasters
  • Because they can’t afford to cover tens of thousands of claims at once
  • Which is why a homeowners policy doesn’t cover floods!

As an “insurance guy,” one of the most common misconceptions I hear about insurance is homeowners who believe their homes are covered if they encounter flooding. NOT TRUE!

A flood is the most common natural disaster, according to Federal Emergency Management Agency (FEMA), whose name you may recognize from the hurricane Katrina relief efforts in Louisiana.

If you’ve ever been in a flood, you’ll know the catastrophic losses they cause.  The cost to repair everything can be astronomical.

Because of these devastating costs, homeowner’s insurance companies won’t provide insurance against floods.  Basically, they couldn’t charge enough money to pay for the losses that result from major flooding.

Regardless of the cost associated with paying flood insurance claims, flood insurance is mandatory for homes and businesses that may be affected, assuming you have a mortgage/loan.

And for that reason, good ole’ Uncle Sam has stepped in and created the National Flood Insurance Program.  The NFIP provides flood insurance throughout the U.S.

There are two ways to get flood insurance for your home:

1. You may live in a community that participates in the national flood program, in which case you can purchase flood insurance at subsidized, or discounted, rates.

This opportunity is typically available in highly flood-prone areas.

2. The second option involves a regular insurance company cooperating with the Federal Government to provide flood insurance.

Basically, the insurance company writes and services the policies and settles the claims.

The Government actually foots the bill for the losses.  An overwhelming percentage of flood insurance policies are offered in these Write-Your-Own flood insurance programs.

Tip: Don’t try to wait until you think you may be at risk of a claim from flood damage to try to purchase coverage.

There is a mandatory minimum 30-day waiting period for any new policies to go into effect, or for requests to increase policy limits on existing policies.

For the record, insurance companies will not add physical damage coverage or increase physical damage limits on an auto insurance policy if a hurricane or flood is predicted to take place by the national weather service.

Check out our Flood Insurance FAQ for more answers to your questions.

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