Flood Insurance picks up where a standard homeowner insurance policy ends. Homeowners policies will not cover flood water damage and, as a consequence, property owners are encouraged to buy supplemental insurance to protect their assets from flood damage.
There are certain regions of the country that have a much greater risk for flooding than normal. For example, properties that sit beside coastal areas or on rivers or lakes are more likely to experience water-related damage from severe storms than a property that is located in a desert climate.
The National Flood Insurance Program (NFIP) is designed to mitigate the impact of flooding on properties by encouraging communities most vulnerable to flooding to put into effect food management strategies and to also provide affordable insurance for property owners in these highly susceptible areas. This is accomplished by working with private insurance companies to alleviate the costly risk of insuring these kinds of properties in NFIP identified regions.
For example, if you buy a home in one of these identified floodplains, you would also buy NFIP insurance available from a private insurance company that would be similar to your homeowners insurance. When a claim is filed, a part will be paid by the private insurance company and the other part will be covered by the NFIP. This keeps costs down by spreading the risk of loss between the government agency and the insurance provider.
When you have a loan on your property in an NFIP designated flood plain, you’re mandated to obtain NFIP insurance by the lender. It is still often a good idea to consider this coverage, even if not in a flood plain, as the peace of mind alone can often justify the expense.