Flood insurance is not something that every homeowner needs, but there are certain areas that require flood insurance, no matter which lender you use. If your home is located in a high risk area, you will be required to obtain and keep insurance against the risk of a flood. If you don’t, the mortgage company will force place the insurance on you, which usually ends up costing you a lot more money than the standard premiums for this already pricey insurance.
Why Require Flood Insurance?
Many people wonder why mortgage companies would even require flood insurance in the first place. The most common reason is simply because your standard homeowner’s insurance policy does not cover damages from a flood. If you live in an area that has frequent floods, you could risk severe damage to your home that you might or might not be able to afford to repair without the help of insurance money.
Determining your Flood Risk
The first thing you should do when you are looking for a new home and decide on a potential one or two is to determine their flood zone. This sounds complicated, but it can easily be done by visiting the National Flood Insurance Program’s website. On this website, you will be able to plug in the exact address of the potential home you wish to purchase to see what the flood risk is for that home. Generally, you will see one of the following risks:
- Moderate to Low Risk Areas – This means that you do not have a very large risk of flooding, but the risk is never completely gone. In these areas, flood insurance is not a requirement.
- High-Risk Areas – As the name suggests, these areas are at high risk for flooding. Typically, it is a 1 in 4 chance for the next 30 years. Any home in this area is required by law to secure flood insurance.
- Undetermined Areas – These areas are not fairly frequented with floods and the exact risk level has not yet been determined. Flood insurance is not required, but is still available in these areas.
If you want to determine your risk in even more detail, you can take a look at the FEMA flood maps, which are available here. On this website, you will plug in the address or even the coordinates of the area in order to view the map. The maps provide in-depth detail regarding the flood lines in your area.
The Benefits of Flood Insurance
Even though flood insurance might seem like an unnecessary expense, it offers great protection against damage that could be fairly serious. Flood damage is no joke; the average claim for damage caused by a flood is $30,000. If you are located in a high risk area, that number becomes even higher. Aside from the obvious financial benefit, there are other benefits you can reap from this insurance:
- You will automatically be covered even if the flood and ensuing damage is not considered a disaster
- Flood zones are not an exact science; many people end up with a flood that were located in a non-risk area
- The policy will cover the building which includes electrical systems, utilities, appliances, and carpeting
- The policy will also cover personal belongings including clothing, electronics, furniture, portable appliances, miscellaneous items
In addition to the above benefits, it should be made clear that your standard homeowner’s insurance policy does not cover flooding. If there is any damage that can be attributed to this issue, it will not be covered. Because it is rather expensive to fix the damages caused by water, you could find yourself in over your head without the right insurance to protect you. Many people assume they will just use the federal assistance that is provided when the president declares a disaster, but you cannot rely on that to get you through.
Whether or not you require flood insurance for your home, you should consider looking into it. There are many companies that offer it, so you can shop around to find the best rates. In the end, you will have the coverage you need should the unexpected happen, which could end up saving you a lot of money in the long run.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.
