What Is FEMA’s National Flood Insurance Program (NFIP)?

So why do people still balk at the chance of purchasing flood insurance to protect their home and most valuable possessions? That’s a question the Federal Emergency Management Agency (FEMA) has likely been asking since launching the National Flood Insurance Program (NFIP) in 1968.

The National Flood Insurance Program was set up by FEMA to issue government-backed flood insurance policies to homeowners, renters, landlords and business owners living or operating in more than 23,000 communities across the U.S., which are divided into three Special Flood Hazard Areas (SFHA): high-risk, moderate-risk and low-risk.

The NFIP currently has more than 5 million flood insurance policies nationwide, but it’s believed that more than 40 million Americans fall into one of three the SFHA categories, which is why FEMA has spent more than $200 million in the past few years on updating its flood maps that determine SFHA zones.

The NFIP was designed in the late ‘60s to address the need for affordable flood insurance and fill the gap between those who were eligible for and those who were too high a risk to secure a flood insurance policy from a private flood insurer. Since the bulk of the NFIP’s customers live in high-risk flood zones, the NFIP is operating at a loss and is funded by the government through taxpayer dollars.

FEMA determines these high-risk flood zones by creating and updating designated U.S. flood maps, which identify flood risk for particular communities by gauging weather patterns, construction and development and other factors such as erosion.

The risk for each member of the SFHA is visualized through FEMA’s U.S. flood maps to show areas most prone to flooding. You can check to see if your home lies within one of these areas by searching your address in FEMA’s community flood maps.

But it’s important to note that people who live in high-risk areas have a one in four chance of experiencing a flood during a 30-year mortgage. That’s a pretty significant chance. But with the changing weather and rising oceans, even the Department of Homeland Security thinks this number is fairly low and inaccurate.

Those who live in these high-risk areas and maintain a mortgage backed by a federally insured or regulated lender must purchase some form of flood insurance to protect their lender’s investment. Due to the increased risk of flooding, these high-risk homeowners may have a difficult time trying to secure privately backed flood insurance, so the National Flood Insurance Program generally welcomes these people first.

Although moderate- to low-risk areas do not require flood insurance, FEMA highly recommends anyone living in those areas to purchase a policy.

Although the NFIP accounts for the majority of policies issued in high-risk zones, flood insurance can be purchased both through the government’s National Flood Insurance Program or through private insurers that issue and take the risk for each policy they write. However, private insurers will likely only issue policies to those living or operating a business in low- to moderate-risk flood zones.

Like standard flood coverage, FEMA flood insurance covers the structure of your home or business and the contents you keep inside the property. Unlike standard flood coverage, FEMA flood insurance has lower coverage limits, maxing out payments for flood damage to residential structures at $250,000, commercial structures at $500,000 and contents kept inside either a home or business at $100,000 per claim.

Coverage for the structure of your home or business is housed under the dwelling portion of an NFIP policy, while coverage for the contents of either is housed under the personal property portion of your policy.

The dwelling portion covers things that are considered the structure of the property, such as the walls, roof, flooring, plumbing and electrical systems. It also provides coverage for some structures located on your property, such as detached garages. Since the NFIP maxes out coverage at $250,000 for residential structures and $500,000 for commercial structures, there’s a chance these policies could leave you underinsured.

For instance, if your house is worth $400,000 and it gets mostly destroyed by a flood, causing damages to the structure that cost $300,000 to repair, you’d only be covered up to $250,000. So you’d be stuck paying the remaining $50,000 out of your own pocket.

Additionally, if you own $150,000 worth of personal belongings — including furniture, electronics, clothes, jewelry and tools — you could be stuck paying another $50,000 out of your own pocket if they’re all destroyed by the flood.

FEMA flood insurance also doesn’t provide any coverage for additional living expenses if you’re forced to temporarily move out of your home due to a flood. However, Private flood insurance does provide some coverage for additional living expenses, which includes a hotel or short-term rental of equivalent value. It’s also important to note that your basement is likely not covered by either flood insurance policy.

That lack of coverage, compared to private insurers that issue coverage for the entire amount of your home and belongings, is why you should try to purchase flood insurance from a private insurer first. However, if you live in a high-risk flood zone, you may have to settle for an NFIP policy. But, since homeowners insurance doesn’t cover flooding, some coverage is better than no coverage.

The average National Flood Insurance Program rates are about $700 per year to insure a home’s structure for $250,000 and its contents for $100,000. However, many more factors go into the determination process of your rates, such as where you live, how often the area has flooded, and how many claims you and your neighbors have filed.

For instance, homeowners living in low-lying states or near the coastline and large bodies of water like Florida, South Carolina, North Carolina, Alabama and Louisiana may pay significantly more for flood insurance because they’re at much greater risk of having to file a claim.

If you purchased a FEMA NFIP flood insurance policy through an agent like Clovered, all you need to do is call them to review your policy. If your home has increased in value, or you’ve purchased more belongings, you may need to increase your coverage if you’re not already maxed out.

The NFIP is sold directly through NFIP Direct, more than 60 private insurers and countless insurance agents — like us at Clovered. You can get a National Flood Insurance Policy through Clovered by submitting an online form, calling 833-255-4117 or emailing agent@clovered.com.

It’s important to research your state’s flood history to see if there has been any flooding in the past. If there has been, we strongly recommend getting a flood insurance policy for your home or business to protect your most valuable investment and the belongings you keep inside. Keep in mind that there’s typically a 30-day waiting period before any flood insurance policy goes into effect.