Overview of the National Flood Insurance Program

The National Flood Insurance Program, or NFIP, is a company that was chartered by the federal government in order to provide flood insurance to individual homeowners. This type of insurance carries advantages for homeowners. This program has been around since 1968. The original purpose of this company was to lower the amount of dependence on federal aid during disasters. Instead of having to rely on the federal government to step in and help you with your losses after a flood, you could be proactive and purchase flood insurance instead. Then, when a flood occurs, you will only have to file a claim and you will be able to be reimbursed for your losses. When it was created, it was the first type of flood insurance that was available to consumers. Now, there are a number of commercial companies that also sell flood insurance to the general public.

Community Requirements

This type of insurance is not available to anyone who wants to purchase flood insurance. In fact, you have to be located in a community that participates with the National Flood Insurance Program. In order to qualify for the program, the local community has to agree to participate in a floodplain management program. By doing this, the hope is that communities will be able to stop building new construction in areas that are susceptible to floods. If your community agrees to participate in this type of program, you can then purchase a policy for your own home.

Borrowing Money

When the National Flood Insurance Program experience is a great deal of insurance losses, it can borrow money from the United States Treasury. This is basically a type of loan from the government that it can take out and then pay back with interest over a certain amount of time. This provides some stability for the insurance company and it also lets individuals who purchase a policy from them feel good about their chances of having an insurance company in the future, regardless of what happens to them financially.

Negative Effect

Even though the basic idea behind this type of insurance coverage is sound, it has led to some potential problems. For example, as a result of having flood insurance available, many individuals have chosen to move to areas that are highly susceptible to flooding. This has caused repeat claims to be filed on many properties and the insurance company has had to continually pay the same homeowners. 

Another potential problem of this type of insurance is that many people who suffer from flooding receive federal aid as well as file a claim and get insurance money. This allows them to potentially profit when a large natural disaster occurs and destroys their home. Many people argue that the National Flood Insurance Program has actually led to more problems than it has solved.

blog comments powered by Disqus