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Thursday, July 25, 2024

Facts about the National Flood Insurance Program

By the RestorationSOS Educational Staff

Flooding can cause widespread damage to homes, neighborhoods, and even entire geographic regions, and the level of damage left behind may take weeks or months to repair, costing hundreds of thousands of dollars. As if that scenario isn't bad enough, most homeowners only find out after the fact that flooding is not covered under their homeowners’ insurance policies, leaving them responsible for a big bill in the wake of big damage.

The unfortunate part of this is that most homeowners do not know what is in their policies and they only find out after a problem has occurred. When it comes to flooding, that is not a good thing. Every homeowner should become familiar with what is in their insurance paperwork and take steps to make sure every contingency is covered. In some cases, flood insurance may be added for an additional premium, but not always.

Coverage for Flood Damage

Fortunately, there is an answer – the National Flood Insurance Program. Established in the late 1960s, the NFIP was put in place by the federal government to provide a measure of aid for property owners with flood damage. Available for an additional premium to your normal homeowners’ policy, NFIP coverage is designed specifically to cover that damage which is routinely ignored by more mainstream outlets. As of last year, the NFIP provided coverage to more than 5.5 million homes.

Of course, not everyone is eligible for NFIP coverage. Your neighborhood or community must be a participant in the program in order for any of their homeowners to qualify. Member communities agree to adopt and implement a floodplain management ordinance to reduce the flood risk to the area in return for the government making flood insurance available.

What the NFIP Does

The idea behind the NFIP was to reduce the danger of future flood risks through community floodplain management while providing protection for homeowners within the area through premium-based insurance mechanisms. Since 1978, the NFIP has paid out more than $38 billion in claims with more than 40% going to residents in the state of Louisiana.

Many residents mistakenly opt out of pursuing flood coverage for their property, choosing instead to rely on federal disaster aid in the event of flood damage to their homes. The problem with this reasoning is twofold:

  1. The area in question must first be declared a disaster by the federal government before any federal disaster relief can be meted out.
  2. Disaster relief comes in the form of low-interest loans that must be paid back, in addition to any mortgage already owed on the property.

Obviously, a nominal premium paid once or twice a year is infinitely preferable to a major loan amount that may take years to pay off.

Due to recent severe weather across the country, the NFIP found itself unable to pay out the number of claims made in 2011. More recently, the federal government has enacted legislation to fund the NFIP through May of 2012.

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