Flood Insurance

Flood Insurance is insurance coverage against property loss from flooding. In order to determine risk factors for specific properties, insurers will often refer to topographical maps that show lowlands and floodplains that have chances for flooding.

Flooding is defined by the National Flood Insurance Program as a "general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties (at least one of which is your property from: Overflow of inland waters, unusual and rapid accumulation or runoff of surface waters from ANY SOURCE, and mudflows".

Across America, only 20% of our homes that are at risk for floods are actually covered by flood insurance. Private insurers are unable to insure against the peril of flood due to the prevalence of adverse selection, which is the purchase of insurance by persons most affected by the specific peril of flood. In flood insurance, the numbers of claimants is larger than the available number of persons interested in protecting their property from the peril, which means that insurers are unable to cover their costs in flood insurance.

In certain flood-prone areas, the Federal Government requires flood insurance before they secure mortgage loans backed by federal agencies such as the FHA and VA. However, the program has never worked as insurance, because of adverse selection. It has never priced people out of living in very risky areas by charging an appropriate premium, instead, too few places are included in the must-insure category, and premiums are artificially low." The lack of flood insurance can be detrimental to many homeowners who may discover only after the damage has been done that their standard insurance policies do not cover flooding. This can be brought on by landslides, a hurricane, earthquakes, or other natural disasters that influence flooding, but while a homeowner may, for example, have earthquake coverage, that coverage may not cover floods as a result of earthquakes.

Insurers in the US do not provide flood insurance coverage due to the hazard of flood typically being confined to a few areas. As a result, it is an unacceptable risk due to the inability to spread the risk on a wide enough population to absorb the potential catastrophic nature of the hazard. In response to this, the federal government created the National Flood Insurance Program on January 1989.

The National Association of Insurance Commissioners (NAIC) found that 33% of U.S. home owners still hold the false belief that flood damage is covered by a standard homeowner’s policy.

FEMA states approximately 50% of low flood zone risk borrowers think they are ineligible and CAN NOT buy flood insurance. Anyone can buy flood insurance as long as their community participates in the NFIP, even renters.