4 Commonly Misunderstood Flood Insurance Laws

Flood insurance is provided through FEMA and the National Flood Insurance Program. The laws for the program are written in the agency guidelines set forth by FEMA. Insurance companies participate in the program to offer the coverage.

Commonly Misunderstood Flood Insurance Laws

Most people will not need flood insurance because they do not reside in areas where such coverage is required. The requirements for flood insurance, as set by FEMA, provide coverage only in areas that are subject to frequent or periodic flooding. The population of homeowners that are required to have flood insurance is a small group. 

Who Requires Flood Insurance

Flood insurance pays for expenses that arise from damage done by a flood. This only affects those homeowners that reside in a designated flood zone. For example, a well known flood area is along the Mississippi River and in the lowland swamp areas of the south. These areas may be subject to flooding. Not every homeowner has access to flood insurance. 

The mandatory requirement for flood insurance as stipulated by the Flood Disaster Protection Act of 1973 and then by the National Flood Insurance Reform Act of 1994 stated that houses that were built in high-risk areas needed to purchase insurance from these calamities. These areas were designated as Special Flood Hazard Areas, shortened as SFHAs. When looking for finance of a home in such an area means that the person needs to look for special flood insurance solutions first.

But, there are ways to work around this. Generally, when an application for a home finance is made, the buyer is asked to get flood insurance, which is to be borne by them. But if they fail to do so, the lender may buy it on their behalf and then add the expense of the insurance to the monthly payments that the homeowner will have to make toward the loan.

Why Is Flood Insurance Mandatory?

The common idea would be that flood insurance is mandatory to protect a particular vulnerable section of homeowners, but generally it is not so. It must be considered that the government might pay for the losses out of its own expense through the various flood relief programs that get initiated in the wake of such natural disasters. In view of this, financial experts feel that flood insurance is mandatory only as a provision for securing loans for properties in SFHAs.

Is Flood Insurance Part of a Homeowners Policy?

A common misunderstanding about flood insurance may be that this is coverage that is part of standard homeowner’s policy. Private insurance companies do not underwrite the risk associated with flood insurance. Your policy will probably have general insurance coverage and will not cover all of the damage that a flood can cause.  

Obtain Information through FEMA

To gain a better understanding of flood insurance requirements and who may be eligible or required to purchase this insurance, a person should read information on the program on the FEMA or National Flood Insurance Program. This information is comprehensive and provides a good overview of how the program works for a policy owner.


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