Flood insurance requirements are set by a lender in concert with FEMA through the National Flood Insurance Program. The National Flood Insurance Program provides coverage to certain homeowners residing in a flood prone area. The amount of insurance needed to protect a homeowner from losses associated with a flood is determined by the replacement value of the home.
Calculating Flood Insurance Requirements
Calculating flood insurance requirements does not involve much by way of mystery or mathematical manipulation. The replacement value of a home constitutes the amount of flood insurance coverage that is required. For example, a homeowner with a mortgage amount of $200,000 would acquire a flood insurance policy for $200,000. Pretty simple. A mortgage holder with a mortgage of $200,000 who put down $50,000 toward the purchase price of the home would have an unmet liability of $150,000. $150,000 would be the amount of flood insurance protection required for the home.
Determining the Amount of Flood Insurance
Calculating the amount needed to meet a flood insurance requirement is performed by the lender and insurance company. Understanding what the lender considers when making this calculation is important but not overly complicated. The lender’s concern is that if damage caused by a flood results in destruction or loss of the home, they want to be compensated for the loan balance. Since a typical homeowner’s insurance policy excludes loss due to flood, the amount has to be obtained from someplace else. That is where the National Flood Insurance Program comes in play.
National Flood Insurance Program
Congress created the National Flood Insurance Program in 1968. The program, which is administered by the Federal Emergency Management Agency or FEMA and the National Flood Insurance Program office, provides guaranteed to lenders and insurers who make loans and provide this specialized coverage to homeowners. The program is only available to those homeowners that reside in designated flood zones that have been subject to abatement and other programs designed to reduce the risk of loss due to floods.
Contacting an Insurance Agent
Determining the amount of flood insurance protection needed to meet a lender’s requirement can easily be done by contacting an insurance agent or company that sells flood insurance plans. The company will take into account the value of your home, the mortgage, the value of property and other items that would be subject to loss in a flood, in order to determine the amount of coverage. As mentioned above, the simplest way to calculate this is to look at the amount of liability that the mortgage holder has to the lender as a clue on how much protection is needed.