Is flood insurance required?

As of 2014, flood insurance is not required for all homeowners, according to the National Flood Insurance Program (NFIP). To find out if your home would require it, you would need to ask yourself these questions:

1. Are you a mortgage homeowner? If not, flood insurance is completely your choice. If you do hold a mortgage, continue to the next question.
2. Is your lender federally regulated? If not, you may not need to pay for flood insurance. If the answer is yes, the odds are good that you will have to hold flood insurance during the lifetime of your mortgage. Please continue to the next question for more information.
3. Do you live in a high-risk flood area? Flood risk is officially calculated by the Federal Emergency Management Agency (FEMA). You can check FEMA's online flood map at FEMA.gov to try and assess your own risk according to their latest calculations. If you find that you do live in a high-risk zone, and you are a mortgage homeowner, and your lender is federally regulated, you will most definitely have to pay flood insurance.

Special Exceptions: If you live in what is considered to be a low-risk flood area, your lender most likely will not require that you hold flood insurance. However, this is not always the case. A federally regulated lender still has the right to require that you hold flood insurance, regardless of your risk assessment.

Under the National Flood Insurance Program (NFIP), federally regulated or insured lenders must require that customers living in high-risk flood areas have flood insurance. That, of course, begs the question of what is a high-risk flood area.

Well, they are areas that have at least a 1% chance of flooding annually and therefore at least a 26% chance of flooding over the life of a 30-year mortgage, according to FEMA (Federal Emergency Management Agency). You can find maps here (https://www.floodsmart.gov/floodsmart/pages/flooding_flood_risks/map_update_schedule.jsp) that allow you to look up the flood risks of different areas based on zip code, but as I’m sure you can guess, the areas with the highest risk of flooding are inevitably going to be coastal towns and low-lying areas either close to a body of water or where it rains a lot.

In moderate-to-low flood risk areas, you won’t be required to get flood insurance, but it could be a good idea. FEMA says that these areas account for 20% of all National Flood Insurance Program claims and 33% of the assistance provided. You might therefore want to check out historical flood data and ask others who live in the area whether they have flood insurance or not before making a final decision.

Now, it’s important to note that what FEMA designates as high-flood-risk areas often changes as a result of regular statistical analysis of river flow, tides, rainfall, topography, etc. So don’t be surprised if your mortgage lender sends you a letter one year informing you of a new flood insurance requirement.

Ultimately, if you aren’t required to have flood insurance, you’ll want to make an informed decision about whether it is truly needed, based not on insurance company scare techniques or anything like that, but rather on the true risk that comes with not having it.