How the National Flood Insurance Program Affects Your Home

As a homeowner, if you live an area prone to floods such as New York City, Houston, parts of Tennessee, and other parts of New York, and Texas – you are likely familiar with flood insurance. Most home mortgage lenders require homeowners in flood plains to maintain flood insurance as a condition of their loan. However, did you know that the federal government backs the flood insurance program? The National Flood Insurance Program (NFIP) is administered by the Federal Emergency Management Agency (FEMA) and requires ongoing government support to provide you and other American homeowners with effective, affordable flood insurance. In July 2012, President Obama extended the NFIP’s ability to continue writing insurance policies through 2017.

Prior to the creation of the NFIP in 1968, homeowners in flood-prone areas found it difficult to buy insurance that would protect them from the devastating effects of floods. Unlike other natural disasters that are more localized or regionalized, such as earthquakes, hurricanes, or tornadoes, floods can occur throughout the entire nation. The private insurance industry was either not offering any coverage or was selling it at prices that were out of the reach for most homeowners. The creation of the NFIP was a unique federal solution in that most insurance matters have been handled at the state level. Since 1983, the NFIP has allowed some private insurers to enter the flood insurance market in the Write Your Own (WYO) program, but those policies have largely been limited to very high-end homes and still were not generally accessible by most homeowners.

Previously, the federal government’s support for flood insurance required regular extensions that, at times, became very politicized. Without reauthorization of the NFIP, your home in a flood-prone area would become uninsured. The signing by President Obama of the Biggert-Waters Flood Insurance Reform Act of 2012 extends the NFIP by five years, much longer than prior extensions. The new authorization also implements some changes to the program that are necessary as a result of large losses suffered during Hurricanes Katrina and Rita. As a result of those two storms, the NFIP paid nearly $18 billion in claims in 2005, causing significant financial concern. The reauthorization act changes some of how the NFIP operates, allowing it to financially right itself and recover some of the extraordinary losses from 2005.

If you are not currently required to purchase flood insurance, you should not consider that to mean you are safe from flooding risks. Flooding can result from storms, hurricanes, mudflows, and after large fires, among other causes. Homeowners in certain areas often erroneously believe they do not have any flooding risk, or worse, do not understand that their regular home insurance policy does not cover any flooding-related damages. All homeowners are at risk for flood damage and should consider a flood policy. In addition, keep in mind that new purchasers of flood insurance have a 30-day waiting period before their policy goes into effect to prevent people from buying coverage when the flooding risk is imminent, so don’t wait until a tropical storm is looming off the coast to consider flood insurance.

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