Flood damage isn’t covered by homeowners’ insurance, so many New Yorkers must purchase separate coverage to protect themselves against flood risk. This is particularly applicable when purchasing property located within high risk flood zones.
Under federal rules, mortgage lenders must require people buying property in high risk areas to purchase flood insurance before closing on their loans. They must secure an NFIP Preferred Risk Policy prior to finalizing their purchase contract.
Homeowners’ Insurance Doesn’t Cover Flood Damage
Flood damage is typically not covered by standard home insurance policies. While homeowners policies typically cover sudden and accidental incidents like trees falling onto homes or pipes bursting, floods are more like slow accumulation of water that causes irreparable damage over time, making it crucial that you obtain additional coverage if you live in an area prone to flooding.
That is why mortgage lenders require their borrowers to obtain flood insurance as part of the loan agreement and why purchasing it should be part of any long-term financial strategy. According to FEMA, even small amounts of water can cause thousands of dollars worth of damage; and those living in areas classified by FEMA as high-risk (zone A or X), or receiving federal assistance for property acquisition, construction, or repair must purchase flood insurance coverage.
People living in low-risk areas don’t necessarily require flood insurance, though from 2014-2018 these residents made up more than 40% of NFIP flood claims filed and one-third of federal disaster assistance grants awarded.
if you do not currently possess flood coverage or are uncertain of what type of protection it provides, speaking to your local insurance agent could be very beneficial. They can assist in finding an NFIP policy or private insurer policy to assist with flood damage recovery financially as well as applying for government funding or tax credits available – just make sure not to wait until a storm threatens as insurers may place moratoriums on sales in order to maintain reserves and limit reserves as much as possible.
FEMA Flood Maps Change All the Time
FEMA maintains nationwide maps that depict the risk of flooding at various locations. Communities and mortgage lenders use these maps to assess whether a property falls within flood zones, as well as set their insurance rates accordingly. But human-caused climate change is altering these maps significantly, with record-setting rainstorms more frequently impacting areas that had not experienced floods previously.
Because many flood risk maps are regularly revised, it could mean your home’s risk has either decreased or increased; this will determine if a policy should be purchased and what its premium may be.
If your community’s flood maps are inaccurate, submit a Letter of Map Change (LOMC) Request to FEMA. This will initiate a formal determination of your property’s location and elevation relative to the SFHA; if approved, removal from it. Changing flood zone status could save significant amounts on insurance premiums as well as allow converting from high risk policies into lower-cost Preferred Risk policies.
Although most homes outside SFHAs are required to purchase flood insurance, only you know how much risk you are willing to take on. Flood damage can be extremely expensive; having flood insurance gives you peace of mind at a far cheaper cost than traditional homeowner’s policies. FEMA provides additional information about reading flood maps and submitting LOMC forms, along with offering their FloodSmart tool which estimates the cost of policies tailored specifically to you or your business.
NFIP
The National Flood Insurance Program (NFIP) is the primary federal source of flood coverage. Any homeowner living within one of the designated “flood zones” is eligible to purchase coverage through this program; mortgage lenders often mandate it before providing financing in these high-risk zones.
The National Flood Insurance Program provides flood coverage to individuals who may otherwise lack options, including those living or doing business in areas identified by FEMA as being at high risk for flooding, as well as those receiving federal disaster assistance like grants and low-interest disaster loans from FEMA.
Typically, the National Flood Insurance Program’s maximum limit for building structure insurance and $100,000 for contents coverage is set by law; however, private insurers often offer higher limits to accommodate homeowners and business owners alike.
Comparing policies is important due to the National Flood Insurance Program’s (NFIP) rates often being inaccurate. This is because it categorizes buildings and contents into general risks, then uses average historical losses as the benchmark to set premiums – leaving out many property-level nuances that more advanced catastrophe models provide for. Furthermore, inaccurate premiums promoted moral hazard by underpricing insurance and encouraging development in dangerous places.
Ideal solutions would involve fully privatizing NFIP and encouraging growth of the private insurance market, both of which would be more efficient than current systems and would limit long-term government liabilities. Financial innovation and improved catastrophe modeling make achieving this goal much more plausible today than when the NFIP first began operations.
Cost of Flood Insurance
Flood insurance premiums depend on where your home is situated and its likelihood of flooding, with higher risks requiring higher payments for coverage. Your building coverage covers repairs or rebuilding in case of flood damage to the structure; personal property coverage pays to replace or reimburse possessions damaged in flood waters. There are ways to lower rates such as selecting higher policy deductibles or purchasing less coverage, but beware if going down this route as the deductible must be covered out-of-pocket in case a claim needs to be filed later on.
No matter what option you select – either the National Flood Insurance Program (NFIP) or private insurer – shopping around for quotes and finding the best price won’t differ depending on which provider is chosen because NFIP policies are government regulated.
Few strategies can help reduce the costs of your National Flood Insurance Program flood insurance: search for properties outside flood zones; hire a surveyor (for about $1,500), to check that your home sits above its base flood elevation; invest in flood-mitigation projects to reduce future flooding risks and potentially get reclassified out of high-risk zones; or invest in flood mitigation projects designed to decrease future flooding risk and be redesignated out.
If moving is simply out of the question or out of budget, consider private insurers like Chubb or Fireman’s Fund as potential sources for additional flood coverage. Such policies can increase NFIP building and contents coverage limits to that of a homeowners policy as well as cover expenses if evacuation becomes necessary during a flood event.
Choosing the Right Policy
Flood insurance may not be legally mandated in every state, but mortgage lenders often require it when purchasing homes in flood zones. By becoming informed now about when mortgage lenders require flood insurance and how you can reduce its cost or altogether avoid it, becoming educated can help ensure you make decisions with an eye towards long-term affordability. Even an inch of water can cause thousands in damage so having the appropriate policy in place is vitally important.
Flood insurance can be obtained in an easy and seamless fashion. Mortgage lenders generally collect an annual premium with your monthly mortgage payment and hold it in an escrow account until payment is made directly to the insurance provider – similar to how homeowners insurance and property taxes work.
However, your decision on which flood insurance you require ultimately rests on your personal risk tolerance. While those living in high-risk areas and holding government-backed mortgages are legally mandated to have National Flood Insurance Program coverage (NFIP), even those at lower risks may want to consider adding this protection because flood damages can be expensive and create considerable financial risks – something witnessed with Hurricane Sandy for instance.
As a property owner, you must determine your risk tolerance and take appropriate actions. No matter where your risk lies, flooding is an ever-present natural hazard in America; when purchasing an insurance policy make sure it includes coverage for both structures and contents with a low deductible; that way you’ll know your investment will remain protected should disaster strike your New York City home.
