Lenders for federally assisted mortgages require flood insurance for property in designated flood zones. It is a condition of obtaining a mortgage and remains in effect as long as a balance is owed on the mortgage. When you pay off your mortgage, you can cancel your flood insurance. If you do so, you undertake a risk the mortgage company was unwilling to assume. That risk is the possibility of flood damage or property loss.
Homeowners insurance does not cover flood damage. It does not matter where you live and the odds of your property flooding. It is simply too big a risk for insurance companies to take with the standard homeowners policy. As a homeowner, you either assume the risk and become self-insured, or buy flood insurance.
Mortgage companies require homeowners insurance for every loan. The minimum coverage for the dwelling is the amount of the loan, although most owners want sufficient protection to cover a total loss. In addition, lenders ask for a certification as to whether the home is in a designated flood zone. A borrower with a home in a flood zone must buy flood insurance for all federally assisted mortgages and most other loans, while owners outside flood zones have the option to purchase flood insurance.
Special Flood Hazard Areas, or SFHAs, is the official name for high-risk flood zones. Congress established the National Flood Insurance Program to provide affordable flood insurance for homes in SFHAs. Homes outside the areas are also eligible for flood insurance. SFHAs have been called the 100-year flood plain but that does not mean a flood occurs only once every 100 years. It means each year carries a 1 percent chance of a flood. It is possible to have two floods in a 10-year period or even shorter time span. Many floods occur outside of SFHAs which can lead to more areas receiving the designation.
To be eligible to purchase flood insurance through the National Flood Insurance Program, your community must participate in the program by complying with certain regulations designed to lessen the damage from flooding. Many insurance agents and companies can obtain the policy. The policies have a 30-day waiting period before coverage. So you cannot wait until the flood waters are rising to buy the policy or reinstate it once it is cancelled.
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