FLOOD INSURANCE
Understanding Flood Insurance - National vs. Private
Flood insurance can be divided into two types:
The National Flood Insurance Program
It is run by National Emergency Management Agency (FEMA) through the National Flood Insurance Program (NFIP). It provides subsidized flood insurance to policyholders living in flood-prone regions. Flood insurance can be purchased from either NFIP directly or any private insurers that are affiliated with it. FEMA is responsible for setting policy rules and underwriting losses.
National flood insurance covers communities that agree to enforce regulations for land use and new construction in high-risk flood zones. More than 22,000 communities participate in NFIP. Most of the time, those tend to be the more flood-prone communities, but that isn't always the case. The rates depend on many factors, which can include the home's age and type of construction, as well as the level of flood risk.
According to the Government Accountability Office, subsidized premium rates are generally 40 percent to 45 percent of the full-risk price. The average annual subsidized premium was $1,121 in 2010, discounted from the $2,500 to $2,800 that FEMA said would be required to cover the full risk of loss.
Private Homeowners Flood Insurance
Private homeowners flood insurance is a quite recent trend and only a few large insurance companies offer it. But insurance market experts expect that to gradually change as the cost of government-subsidized insurance increases in coming years. After flood claims from a long series of disasters over the past decade pushed the federal flood program deeper into debt, Congress in 2012 enacted the Biggert-Waters Act. The reforms were intended to end taxpayer subsidies to the program by forcing property owners in the highest risk areas to pay premiums that more accurately reflected their flooding risks.
Most private policies will cover any area, and the benefits are usually more extensive compared to the ones that national flood insurance offers. However, the private homeowners flood insurance premiums may not be considered affordable when compared with the federal flood coverage. Most working class and middle class families have to rely on FEMA for coverage because the private alternatives are beyond their price range.
