FHA to Accept Private Flood Insurance
Previously, homeowners with an FHA-insured loan could only purchase coverage through the National Flood Insurance Program (NFIP). Borrowers who buy private flood insurance may now have the opportunity to save money and obtain a more comprehensive policy.
The FHA has recently announced its plan to join the rest of the lending community in accepting private flood insurance. Other lenders have been required to do this since the Biggert-Waters Flood Insurance Reform Act passed in 2012.
With this new change, the FHA predicts that many of its borrowers will take advantage of the private flood insurance options. This would be wise for homeowners who live in areas where floods are likely, as flooding is one of the most common costly natural disasters.
What is flood insurance and what does it cover?
A flood insurance policy is for homeowners that may need to protect their homes from flooding and possible water damage. Flood insurance is not included in your homeowners insurance and needs to be purchased separately.
Flood insurance is not only for those living in a flood zone. Unfortunately, floods can happen anywhere, at any time. For those with a 30-year mortgage, there is a 26% chance of a flood occurring during that time. A flood can result in damage and loss, so most homeowners would not want to take this risk of being uninsured.
If a flood occurs, flood insurance will typically cover the following three areas.
Erosion caused by an event such as the following:
- Heavy rain
- Prolonged rain
- Coastal storm surges
- Blocked drainage systems
- Levee dam failure
Reimbursement for Structural Damage, including the following:
- Damage to foundation
- Damage to electrical and plumbing systems
- Air conditioning systems, furnaces, and water heaters
- Refrigerators, stoves, dishwashers, and trash compactors
- Carpet and flooring
- Cabinets and paneling
- Debris removal
Damage to personal property such as the following:
- Small appliances
- Washer and dryer
- Valuables up to $2,500
Which homeowners need flood insurance?
If you are a homeowner living in a designated flood area, you should purchase flood insurance. Living in a flood zone increases the odds of a flood occurring. While most floods cannot be prevented, with flood insurance, you can protect your assets.
While living in a flood zone guarantees your need for insurance, all homeowners should consider purchasing it. The damage that flooding and water can cause is not only a nuisance but can be very expensive. Water damage can also happen suddenly, giving you no time to prepare for the damage to come.
You don’t have to live by a river or lake for flooding to damage your home. Floods can happen in inland areas as well. For instance, a home can be flooded by melting snow, a creek or pond that overflows, or water running down a steep hill. A flood could also lead to a sewer backup in your home, causing damage.
In most cases, even if you did have time to prepare for a flood, all damage cannot be prevented. Meaning all you can do is rely on flood insurance to protect you from the financial aftermath of a flood.
While the FHA has not previously provided private and competitive options for flood insurance, they are now pushing for lenders to accept private flood insurance. This gives homeowners an alternative to the National Flood Insurance Program, which will benefit those with single-family FHA-insured loans and properties located in Federal Emergency Management Agency-designated Special Flood Hazard Areas. These are two groups who likely need to purchase affordable flood insurance.
What is the current process for obtaining flood insurance?
As a homeowner interested in buying flood insurance, you may look into companies that sell policies from the National Flood Insurance Program. Purchasing coverage through the NFIP is still the most common route to go. If you decide on an NFIP policy, you will need to wait 30 days for your flood insurance to go into effect. This is why it is best to purchase it sooner rather than later.
Or you may decide that it would be in your best interest to purchase private flood insurance because you have heard that it offers better coverage. On top of higher limits and a broader range of coverage, private flood insurance is also known for fewer exclusions and shorter waiting periods than coverage from the NFIP.
Either way, the first step would be to find and reach out to an insurance agent and decide on the type of flood insurance you would like to buy.
How it could soon change
While the NFIP is still the most popular choice for homeowners, that may be changing. Now that the FHA is interested in accepting private flood insurance, many homeowners and future homeowners may be more likely to choose this alternative. The FHA anticipates that thousands of FHA-insured borrowers will purchase private market flood insurance.
You can speak to your insurance company that handles your auto insurance and homeowners insurance to learn about your flood insurance options. They will work with you to ensure that the flood insurance coverage you choose meets the specifications that the FHA requires for homes with FHA loans.
Frost & Remer is here to discuss your options
For more information about flood insurance and what to expect if a natural disaster such as flooding does occur, it is best to speak with an insurance agent.
At Frost & Remer, we are an independent insurance agency that can help you protect your family, your home, and your assets.
Schedule a virtual appointment for your full policy review and risk assessment from Frost & Remer. We can discuss new or existing flood insurance policies and make recommendations to ensure you’re protected with affordable coverage.
Photo by Vidar Nordli-Mathisen on Unsplash