ABCs of the National Flood Insurance Program

Public Works Resource
July 27, 2012 — 1,510 views  
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According to the Federal Emergency Management Agency (FEMA), the National Flood Insurance Program (NFIP) was created by Congress in 1968 to provide a way for property owners to financially protect themselves in regards to flooding. This is important because standard homeowners insurance does not cover flooding, yet many homeowners are at risk of conditions such as heavy rains, hurricanes and tropical storms.

The NFIP offers flood insurance to homeowners, business owners and renters who are located in a community that participates in the NFIP. The agency states that participating communities have agreed to adopt and enforce FEMA requirements. These mandates have been set forth to reduce the risk of flooding. Nearly 21,000 communities nationwide participate in the NFIP.

Flood insurance provided by the NFIP protects two types of properties - an owner's building and his or her possessions. However, the insurance does not cover the land on which the property is located. The organization explains building coverage includes elements such as the foundation, plumbing and electrical systems, appliances and carpeting or flooring. Items covered under possessions include furniture, electronics, clothing, portable appliances, curtains and washers and dryers.

Some properties are required by law to have flood insurance, such as those located in high-risk flood areas. Homes and buildings that have a 1 percent or greater chance of flooding during the year are considered high-risk, according to FEMA. This means they have a 26 percent greater chance of flooding during a 30-year mortgage. However, any lender can require flood insurance, even if a property is not in a high-risk area as determined by federal regulations.

Fox News reports that in June 2012, Congress approved a five-year extension to the NFIP. If the program was not renewed, the fragile housing market may have suffered as prospective homeowners in high-risk flood areas would have been unable to close on mortgages, states the news outlet. In 2010, a lapse in the program that lasted for two months caused around 1,400 home sales to be cancelled per day.

This extension hopes to place the program on better financial grounds than it was in 2005, when Hurricane Katrina left the NFIP owing the U.S. Treasury Department billions of dollars. In June 2012, the program still owed nearly $18 billion. The new plan grants the government increased flexibility to raise rates and ends federal coverage of certain properties such as vacation homes, reveals the source.

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