How the National Flood Insurance Program Protects You

Floods have been shown to cause serious devastation throughout history and have resulted in damages reaching into the billions.

When major floods occur, the federal government will oversee disaster relief efforts and the rebuilding of the impacted communities. However, the taxpayer often gets hit with the bill for such interventions on the part of the government.

In response to mounting flood losses and increasing disaster relief costs, the United States Congress created the National Flood Insurance Program (NFIP) in 1968. This insurance program was developed to assist property owners in financially protecting themselves in the case of serious flooding damage.

Anyone can be at risk

Many communities might believe they are not at risk for flooding. However, history has shown that anywhere it rains, it can flood. Even Arizona, known for its dry heat, has experienced serious flooding at least once every decade.

A flood is defined as a temporary condition in which two or more acres of normally dry land or two or more properties are inundated with water or mudflow. Flooding can result from a number of events, such as hurricanes or tropical storms. However, sometimes flooding is not caused by the weather itself but instead by the inability of outdated infrastructure to handle the rapid downpour of water, such as when the levees broke in New Orleans after Hurricane Katrina hit in 2005.

When the federal government initiated the creation of the NFIP, federal officials originally estimated that only 5,000 communities would have flood hazards. After delving more deeply into the problem, they found that more than 20,000 counties and towns were at risk of flood to some degree.

How to determine your area’s risk level

Several factors are considered when determining an area’s risk level for flooding: rainfall, river-flow and tidal-surge data, topography, flood-control measures and developmental changes.

There are three basic flood risk levels used by the NFIP:

• High-Risk Flood Areas: These areas have a 1 percent or greater chance of flooding in any given year, which is equivalent to a 26 percent chance of flooding during a 30-year period. Homes and buildings in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance.
• Moderate-to-Low-Risk Areas: These areas are still at risk for flooding but not to the same degree as the high-risk areas. Homes and businesses with mortgages from federally regulated or insured lenders are not required to have flood insurance. Despite this lower risk, flood insurance is still highly recommended for these areas. In fact, one out of every four flood claims, or 25 percent, occur in moderate-to-low-risk areas.
• Undetermined-Risk Area: These areas are those locations for which has not yet been determined by the government.

To find out the risk level for your community, you can access up-to-date flood hazard maps on the NFIP’s website.

How the NFIP works

Coordinated by Federal Emergency Management Agency, or FEMA, the NFIP offers flood insurance to homeowners, renters and business owners if their community participates in the program. Working with nearly 90 private insurance companies, the program provides access to insurance through property and casualty insurance agents.

Rates for flood insurance will depend on several factors, including the date and type of construction of your home or building as well as your community’s level of risk. The lower the degree of risk, the lower the flood insurance premium will be.