- National Flood Insurance Program, created by
in 1968 to address recurring significant property
due to flooding.
FIRM - Flood Insurance Rate Map created by FEMA (Federal
Emergency Management Agency) showing areas of
relative flood risk (flood zones). FIRMs are updated
reflect changes in observed flood patterns,
and commercial development, road
construction, and other factors affecting an area's flood
risk and BFE.
BFE - Base Flood Elevation - level within a flood zone to which
at least a 1% chance of reaching during
any given year.
Elevation Certificate - document completed by an
surveyor, civil engineer, or architect that shows
flood zone, design, position on the
relative to the BFE.
Cities, towns, counties, and communities voluntarily participate in the NFIP by adhering to the floodplain management practices put out by FEMA and having their FIRMs updated periodically.
Two laws direct all Federally-overseen lenders (just about all companies extending mortgage loans in the US are Federally-regulated) to require Flood Insurance for the acquisition or construction of buildings in
Special Flood Hazard Areas, identified as
V zones on a FIRM.
They are the
Flood Disaster Protection Act of 1973 and the
National Flood Insurance Reform Act of 1994
In addition to Federal regulation, for decades lenders have required Flood Insurance as part of their own
risk management when extending financing on properties in these higher-risk zones. This applies to refinances as well as purchases.
Flood Insurance is only required on financed properties
flood risk zones starting with "A" or "V",
as shown on the FIRM.
Many lenders now want Flood Insurance
along with property taxes and other hazard insurance.
If your buyers learn only these 2 points from you about Flood Insurance, they'll know more than most others!
If a property is owned free and clear or is being purchased with all cash, the owner may choose to be "self-insured", personally accepting full risk and paying for any damages out of pocket.
However, homeowners/hazard insurance policies specifically exclude flood damage.
Even when financing is not used, Flood Insurance is a good idea for properties in those A and V higher-risk zones, especially if the first floor is not elevated from street level.
As we mentioned in the recent introductory newsletter on property insurance,
maximum coverage under NFIP Flood Insurance for single-family properties is
If that seems low compared to property values in your area or neighborhood, keep in mind that
complete destruction of a property rarely occurs during flood conditions.
Most common flood damage is to ground-floor :
outlets and wiring
As with other property hazard insurance, only the improvements (structures) on a property are being insured.
The land value is not covered by hazard or Flood Insurance.