Definition:
Flood insurance is a separate policy that protects a homeowner from financial losses caused by flooding. It covers damage to the home and, in some cases, its contents due to rising water from natural events.
Example:
Sarah buys a home near a river. Her lender requires her to purchase flood insurance because the property is in a high-risk flood zone. A year later, heavy rains cause the river to overflow, flooding Sarah’s basement. Her flood insurance helps pay for the repairs and damaged appliances.
Explanation:
Standard homeowners insurance does not cover flood damage. That’s why flood insurance is often required separately—especially if the home is located in a federally designated flood zone, as shown by a FEMA flood map. Lenders use flood certifications to determine if flood insurance is needed as a condition of the loan.
Flood insurance can be purchased through the National Flood Insurance Program (NFIP) or private insurers. Policies typically cover structural damage to the home, and some may offer additional coverage for personal belongings inside. The cost of flood insurance varies based on the home’s location, elevation, and flood risk.
Even if a home is not in a high-risk area, buyers can still choose to purchase flood insurance for added protection.
Why is Flood Insurance Important in Real Estate Transactions?
Flood insurance is important because it protects both the homeowner and the lender from costly flood-related damages. For buyers, it ensures financial security in the event of unexpected water damage. For sellers, being upfront about flood insurance requirements and flood zone status is key to a smooth sale.
Understanding flood insurance helps buyers budget properly, prepare for future risks, and avoid surprises after closing. It’s an essential part of protecting a major investment like a home.