FLOOD INSURANCE
FEMA and the NFIP
Flood zones
Insurance requirement
Disclosure
Cost of insurance
FEMA and the NFIP
The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance Program (NFIP). The purpose of the NFIP is to reduce the financial impact of flooding on both private and public structures. In addition to providing affordable flood insurance, it also encourages the development of floodplain management regulations as well as their enforcement.
Flood zones
Flood hazard. Flood zones as designated by FEMA are areas that border rivers and streams where flooding is a concern. Designated flood hazard zones are subject to restrictions on the location, type, and elevation of all improvements to the land (residential, agricultural, commercial, and industrial). Flood maps generally show a community’s flood zones, floodplain boundaries, and Base Flood Elevation. This information, when examined together, determines the risk of flooding.
Flood hazards will change over time. The flow of water and how it drains can change due to natural or manmade causes. New land use and community development, natural forces such as climate change, terrain changes, and wildfires all can impact the risk of flooding.
To better reflect the current flood risk conditions, FEMA uses the latest technology to update and issue new flood maps nationwide to aid communities, property owners, businesses, and other stakeholders in taking steps to address flood risks. For informative videos and more information including flood maps, visit www.fema.gov and www.floodsmart.gov.
Insurance requirement
If a property is in a FEMA-designated flood hazard area, and financing is being obtained through a federally regulated mortgage loan, flood insurance is required. Flood insurance, which is a separate policy, cannot be purchased directly from the NFIP but must be purchased through the same companies that provide regular homeowners’ insurance.
If an entire structure is above the 100-year flood plain, it has a 1% annual chance of flooding, and the requirement for flood insurance may be waived. The zone it is located in is called the Special Flood Hazard Area (SFHA), also known as the 1% annual chance flood zone. Properties located in low- to moderate-risk flood hazard areas such as the SFHA are not federally mandated to be covered by flood insurance; however, a lender may still require it. As flood hazard area maps are revised and properties move from low- to high-risk areas, flood insurance becomes a requirement.
Residents in a high-risk flood zone who have received federal disaster assistance in the form of grants from FEMA or low-interest disaster loans from the U.S. Small Business Administration (SBA) following a Presidential Disaster Declaration must maintain flood insurance in order to be considered for any future federal disaster aid.
Disclosure
Brokers have the responsibility to disclose if any portion of a property is located in a flood hazard area, as this is a material fact. Buyers should be advised to consult FEMA flood maps and/or check with the local planning office to determine the precise location of any flood zones and restrictions.
Cost of insurance
Charges for flood insurance are based on the following:
- flood zoneclassification (this determines the risk of flooding)
- age of the building and number of floors
- occupancy as well as contents and their location
- location of the lowest floor of the building in relation to the base flood elevation
- amount of coverage
- deductibles
