Flood Damage Insurance Criteria
Normal homeowners insurance provides coverage against a number of different events but does not sell any coverage against large-scale disasters, such as earthquakes and floods. These events cause so much destruction that insurance companies are not able to make payments for the damage done, so they are excluded from all types of private insurance. The United States Government, however, provides its own flood insurance for homes in areas that may be affected by floods. This insurance comes with several requirements.
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Special Flood Hazard Areas
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In order to qualify for the National Flood Insurance Program, the house must be in a Special Flood Hazard Area. These Areas are examined and identified by FEMA, the Federal Emergency Management Agency. FEMA uses a number of different types of analysis, studying the long-term effects of rainfall, river flow and storm tides. The combination of historical, geological and meteorological data point to certain areas that have a chance of dangerous floods. Only areas that qualify can be provided with national flood insurance. As weather patterns and geological conditions change, areas are updated.
Community Ordinances
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A community must make certain ordinances if it is located in a Special Flood Hazard Area and wants to receive flood insurance for its houses. Most of these ordinances concern the building of new houses. Houses may need to be built with special, flood-resistant materials or built above the base flood elevation line to reduce the risk of damage. Communities that do not create and follow these ordinances are given a short time to do so, after which flood insurance is denied.
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Minimum Coverage
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Individuals purchasing flood insurance must meet criteria of their own. They have to purchase flood insurance coverage that meets the lower of two amounts: the amount of money it would take to compensate the owner based on replacement costs for all damages or the maximum amount of flood insurance available for that particular area. Essentially, the larger the house and property in the flood zone, the more flood insurance the homeowner must legally pay for.
Lender Requirements
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Lenders who offer mortgages for homes in flood-prone areas do not offer flood insurance through private channels but do work with the federal government to connect borrowers with necessary policies. Most lenders will not even give out mortgages without this insurance because federally regulated lenders have a legal obligation, like the homeowner. If the homeowner does not purchase the flood insurance, the lender will purchase it for her automatically and add in the cost of the insurance to the loan payments, plus fees.
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