Flood Insurance Requirements
Areas with at least a 1 percent chance of flooding in a given year are known as high-risk areas, or “Special Flood Hazard Areas.” If a structure in a high-risk area has a mortgage from a federally regulated lender, federal law requires that it be insured against flood damage.
A residential building can be insured for up to $250,000 and its contents for up to $100,000. Residential renters can cover belongings for up to $100,000, and a nonresidential property owner can insure a building and its contents for up to $500,000 each. In general, a policy does not take effect until 30 days after flood insurance is purchased. If a structure is located in a low- to moderate-risk area, the flood risk is reduced, not removed. Twenty to 25 percent of all flood claims occur in low- to moderate-risk areas. Lower cost Preferred Risk Policies (PRPs) are available for most properties located in areas of low to moderate risk, starting as low as $112 a year.
Homes and apartments located in low- to moderate-risk areas may be eligible for PRP rates as long as the building meets the requirements, including the flood history. Lower premiums may also be available in communities that go beyond NFIP minimum standards of floodplain management by adopting stricter construction requirements or by adopting additional mitigation plans and preparedness activities. The NFIP’s Community Rating System qualifies such communities for reduced flood insurance premiums ranging from a 5 to 45 percent discount.
A common misconception is that homeowners policies cover flood damage. This is not true. Typically, only flood insurance through the NFIP protects a property from flood-related losses.