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Why Do I Need Flood Insurance?

Why Do I Need Flood Insurance?

If you take out a mortgage to buy your home, you're agreeing to abide by the lender's rules-which often include a requirement to purchase flood insurance. If you own waterfront property, that may seem like a logical requirement. But what if you live on a hill or the top floor of a high-rise condo. Why is flood insurance required?

Flood Insurance Requirements

The National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 are laws, passed by the U.S. Congress, that requires property owners in special flood hazard areas (SFHAs) to purchase flood insurance. Some lenders also require it for property located outside SFHAs.

The National Flood Insurance Program (NFIP) is a U.S. government insurance program that sells flood insurance to property owners who need it. According to the NFIP:

"Flooding occurs in moderate-to-low risk areas as well as in high-risk areas. Poor drainage systems, rapid accumulation of rainfall, snowmelt, and broken water mains can all result in flood. Properties on a hillside can be damaged by mudflow...Structures located in high-risk flood areas have a significant chance (26 percent) of suffering flood damage during the term of a 30-year mortgage. In a high-risk area, your home is more than twice as likely to be damaged by a flood than by fire. For these reasons, flood insurance is required by law for buildings in high-risk flood areas as a condition of receiving a mortgage from a federally regulated or insured lender."

Talk to a real estate lawyer if you have questions about whether you're required to purchase flood insurance, or if you're having trouble with a flood-related insurance claim.

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