Flood Insurance

Flood insurance requirements may vary from state to state, but depending on where your home is located, lenders may require that you obtain flood insurance as a condition for final loan approval.  Most homes requiring flood insurance will likely see their insurance premiums increase or decrease depending on the degree of risk associated with the area in which the home is located.  Whether you are refinancing your home or purchasing a new home, if your home is located in a flood prone area, you will be required to carry some type of flood insurance.  Obviously as you are looking at properties to buy, you should consider the cost of flood insurance, especially if the home is located in a high risk area where flood insurance policies could run high.   

Due to substantial losses in flood prone areas, insurance companies have eliminated most of their flood insurance products.  Instead these insurance companies have left it up to the local and federal governments to provide flood insurance protection.  Today, in order to obtain flood insurance you must reside in a community that participates in the National Flood Insurance Program.  This program was enacted in 1968 and was designed so that a home owner could purchase flood insurance directly through their local governments.  Though these policies are underwritten and sold by private insurance companies, they are still regulated by the government.  Government regulation is necessary in order to reduce costs on the premiums offered to home owners in need of flood insurance.    

Your title company will set aside additional funds at closing to pay for your flood insurance policy.  The additional flood coverage will encompass flood-related claims not currently covered by your homeowner’s policy.  The scope of the policy will vary by location, but should cover flood-related damage, such as floods resulting from: storms, melting snow, water backup, dam or levee failure, and (in most cases) plumbing issues.

Flood-related losses in 2007 and 2008 became the number one type of disaster reported in the U.S, and what made that even worse was that only 20% of those individuals affected actually carried flood insurance.  Most people located in non-flood plain markets will ignore the need for flood insurance, even though they may find out the hard way; that they are not immune to flood related damages.  In fact, 25% of all claims related to flood damage actually occurred in areas that were not considered to be in a flood plain.   

Insurance premiums have increased over the years, and in some areas the cost for flood insurance will be more then in other areas.  The cost of flood insurance depends on the areas flood classification, which is determined by how likely an occurrence for flood related damage might be.  Premiums can range anywhere from $199 to as high as several thousands of dollars.  The national average for a flood insurance policy is around $350.