How it works ::
Flood Insurance coverage is required by Law for those
people determined to be living in Special Flood Hazard Areas. The areaís
determined to be in a flood zone are from the prior one hundred years and are a
direct response to disasters occurring like melting snows, heavy rains, tropical
storms, hurricanes as well as failed drainage systems or dams.
These types of high water occurrences make the property
owners more prone and highly susceptible to flooding waters.
Prior to 1968, the individual taxpayer was required to
shoulder the burden of providing relief and funding for flood victims in these
highly prone flood areas.
These often times unexpected or expected costly bail outs
began to make the taxpayer weary and angry. Therefore, the United States
Government created a type of self-insurance for people who want to live in these
special flood zone areas.
The Federal Emergency Management Agency (FEMA) was created
and directed by the United States Congress to oversee this program which is
called the National Flood Insurance Program. This program was designed to
mitigate future flood damage claims against the Federal Government as well as
ultimately freeing up the individual taxpayer from the burden and responsibility
of restoring flood victims lives back to as they were before the peril happened.
Basically, people choosing to live in a high water special
flood hazard area are now required to pay FEMA the pre-set government regulated
premium for their flood insurance coverage. These premiums that FEMA collects
for underwriting the flood insurance is then used to offset any future claims
which will need to be paid as a result of high flooding waters.
Again, this is like a type of self insurance for people
living in flood zones who are required to pay flood insurance. There are now
over 20,000 communities in the United States enforcing the flood plain
management ordinances. This strong partnership between communities, lenders,
and insurance companies now saves the American taxpayer millions of dollars each
year in disaster relief money.
The main reason for the program's success is the direct
result of NFIPís strict ordinances and compliance procedures. This very strict
government ordinance requires financial institutions which are regulated by the
Federal government to perform and prepare what is called a flood determination
If the building or home is determined to be in a special
flood hazard area then the financial institution loaning the money is required
to provide documentation to the Federal Government showing all necessary
flood insurance premiums have been obtained and paid prior to loan financing.
Flood Insurance must also be maintained and in force for the remainder of the
As a result of the strict government guidelines, people
choosing to live in flood zones areas are required to pay flood
insurance premiums or their mortgage loan will be considered in default.
Premiums collected by FEMA will ultimately be used to offset high water damage
caused by flooding waters for the people paying flood insurance premiums.
Homes built to FEMA's strict guidelines and located in a
flood zone will have a 26% chance of needing the flood insurance coverage
sometime the term of their 30 year mortgage. So, it is no wonder the
Federal Government decided that people choosing to live in special flood zone
areas are required to pay flood insurance premiums in order to get a mortgage