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.
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