Is Flood Insurance Mandatory?

Are you required to have flood insurance? To many people, it may seem like one more bill they have to pay for no reason. Especially if you live in a higher level condo, you may wonder why. The good news for many condo owners is your master policy generally includes basic flood coverage. There are multiple types of flood insurance coverage, and you could be giving up more than you realize if you don’t have it for your single family residence.

When do you need flood insurance coverage?

There are a few times when you aren’t required to carry flood insurance even in high-risk areas. But it’s recommended that you consider your options.

• If you pay for your property in cash or its free and clear
• You are not living in high-risk flood areas
• The master policy on your condo has flood insurance included
• The determination is made by the lender using a flood cert

If you do not have a mortgage, you do not need to buy flood insurance. If you do have a mortgage, mortgage lenders can require flood insurance coverage depending on where you live. This is largely because they have an “ownership interest” in most of the property if you only came in with a nominal down payment, such as 5-10%.

There’s a lot of risk and they’ll ensure they are protected in the event of a flood or similar destruction. A flood doesn’t just cause water damage and mold if not treated properly. Brown water can come with health hazards and long-term damage of its own. Most importantly, if you do not have NFIP approved flood insurance in certain areas, you could be giving up your right to FEMA assistance.

Of course, flood insurance will only be mandatory if it’s determined that your financed property is located in a flood plain, or special flood hazard area (SFHA). Even if you live in a high-rise, it’s recommended to consider your homeowners coverage options.

How common is flood damage for an insurance agent?

• Floods are the most common natural disaster according to FEMA
• Insurance companies often exclude natural disasters due to the high cost of mass claims
• All flood policies are sold by the NFIP through private insurers. So prices are locked in, but underwriting processes can vary

As an “insurance guy,” one of the most common misconceptions I hear about insurance is homeowners who believe their homes are covered if they encounter flooding. NOT TRUE!

A flood is the most common natural disaster, according to Federal Emergency Management Agency (FEMA), whose name you may recognize from the hurricane Katrina relief efforts in Louisiana.

If you’ve ever been in a flood, you’ll know the catastrophic losses they cause.  The cost to repair everything can be astronomical. While FEMA does step in after disasters, they often make their assistance contingent on flood insurance coverage. In short, you’re contributing to a general fund, and then you can take advantage of that general fund when you need the help.

Homeowner’s insurance companies have to remain profitable. Covering a large volume of claims isn’t practical or profitable given the short term staffing and other issues.

Regardless of the cost associated with paying flood insurance claims, flood insurance is mandatory for homes and businesses that may be affected, assuming you have a mortgage/loan.

And for that reason, good ole’ Uncle Sam has stepped in and created the National Flood Insurance Program.  The NFIP provides flood insurance throughout the U.S.

How can you get flood insurance for your home?

1. You may live in a community that participates in the national flood program, in which case you can purchase flood insurance at subsidized, or discounted, rates.

This opportunity is typically available in highly flood-prone areas.

2. The second option involves a regular insurance company cooperating with the Federal Government to provide flood insurance.

Basically, the insurance company writes and services the policies and settles the claims. The Government actually foots the bill for the losses.  An overwhelming percentage of flood insurance policies are offered in these Write-Your-Own flood insurance programs.

Tip: Don’t try to wait until you think you may be at risk of a claim from flood damage to try to purchase coverage.

There is a mandatory minimum 30-day waiting period for any new policies to go into effect, or for requests to increase policy limits on existing policies.

For the record, insurance companies will not add physical damage coverage or increase physical damage limits on an auto insurance policy if a hurricane or flood is predicted to take place by the national weather service.

Check out our Flood Insurance FAQ for more answers to your questions.

Will a private insurer cover floods for condo owners?

Flood insurance for condo owners is a little different. Your master policy will carry the NFIP flood coverage as needed. You would want to add water backup and other similar coverage to your HO6 policy. Generally, you can get a modest amount of coverage at a low price through a private insurance company. Even a small amount can go a long way for condo owners.

Read More: Water Seepage and Leakage Coverage (What Homeowners Insurance Covers)