FEMA Flood Insurance Requirements

Flood insurance is a necessity for many home mortgages, especially those in more flood-prone areas. This federal mandate is upheld by requirements to lenders and borrowers as set by the Federal Emergency Management Agency, or FEMA. These requirements are set in place to help ensure replacement costs are covered in the event of flooding. While sensible, this insurance is often overlooked as a necessity, and is the only insurance required by law.

Residency Requirements

• People who live in a high-flood-risk area are required to have flood insurance for their residence if they own it. Landlords who own property in flood-risk areas are also required to have flood insurance for the properties in the flood zone. Anyone who has a mortgage on property in a flood zone is required to have flood insurance for the life of the loan. You are not required to buy flood insurance if your property is deemed to be outside of the flood zone.

Waiting Period

• There is a 30-day waiting period after the initial purchase of flood insurance for the policy to become effective. The exception to this rule is when flood insurance is purchased as part of the mortgage requirement, which then waives the waiting period and the insurance becomes effective immediately. If the flood zone map for the property is revised, bringing the property into the flood zone, time is allowed for property owners to get flood insurance; if the insurance is purchased within the time frame, the waiver for the waiting period is also applied and the insurance is effective immediately.

Coverage

• The coverage requirement is used in cases of direct or indirect cause from flooding. Physical damage caused directly from flooding is usually covered. Indirect damage can also be covered if the damage was caused as a result of flooding; such indirect damage can be caused by mud slides, sewer backup, sink holes or fire.

Mortgage Requirement

• If you are obtaining a loan for property in a flood zone and insurance is available for the area, the lender is required by law to order that flood insurance be placed on the property before the loan is closed. This means that borrowers cannot complete the loan or purchase of the property until the lender has verified proof of insurance on the property.

Lender Requirements

• Lenders are required by federal law to make sure mortgage holders with property within flood zones have flood insurance to cover against losses. The lender is required to hold off the close of the loan until you provide proof of flood insurance. If your lender uses escrow accounts for taxes or other insurance premiums, it must also provide an escrow account for flood insurance. Notice must be sent to FEMA when the initial loan is made or increased, extended, renewed, sold or transferred during the life of the loan; this notice must also be sent to the insurance company. If your insurance lapses, the insurance agent must inform the lender, who then must buy insurance within 45 days of informing you of the insurance lapse. It can charge you for any premiums paid with this purchase.