When insuring your home, it is important to consider whether or not you need flood insurance. Most regular homeowner's insurance policies do not cover water damage, so additional insurance is often necessary. The amount you pay for this type of insurance will be directly affected by your flood zone code, which is designated to an area by the Federal Emergency Management Agency (FEMA). Your flood zone code may also affect your mortgage.
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FEMA Flood Zones
To determine which areas of the country are most likely to be flooded, FEMA conducts an ongoing historical analysis of flood planes. Based on the anticipated likelihood that an area will become flooded in any given year, FEMA will designate it as a flood zone. Areas with a low or moderate risk of flooding--considered to have less than a 1 per cent annual chance of a flood--are given a lower risk zone code. Areas considered to have at least a 1 per cent chance of flooding during the year are considered high risk areas and are coded as such.
When you purchase or refinance a home, your lender is required to obtain a Flood Hazard Determination from FEMA. This document shows the bank whether FEMA has designated the land your property is on as a Special Flood Hazard Area. Regulations require that this specific form be used for consistency and ease of understanding its contents. If the bank finds that your property falls within a Special Flood Hazard Area, it will mail you a notification of this information, which shows your flood zone designation.
High Risk Codes
Flood zone codes are alphanumeric and usually contain between one and three characters. Codes that designate areas with a high risk for flooding begin with the letter "A." According to FEMA's analysis, these areas have at least a 1 per cent chance of flooding during the year, and a 26 per cent chance that they will flood sometime over the course of a 30-year mortgage. A code of "AR" indicates that the area has a temporarily elevated risk of flood due to the construction or repair of a flood control system. Flood zone codes beginning with "V" are also high risk, but are designated differently because they are located on the coast.
Low and Moderate Risk Codes
In addition to coding properties with a high risk of flooding, FEMA also codes areas with either a low or moderate flood risk. These areas are indicated with a code of "B," "C" or "X." While these areas do not have as high a flood risk as codes beginning with "A" or "V," purchasing flood insurance may still be a good idea. Because risk is lower in these zones, insurance will be less expensive than it would be in high risk areas.
FEMA has implemented a National Flood Insurance Program, which offers government flood insurance in participating communities on properties with flood zone codes from low to high. When you take out or refinance a mortgage and a lender finds that your property falls within a high risk area, you are required by law to purchase flood insurance on the building. The law says that you must carry enough flood insurance to cover the lesser of either the value of your home or the outstanding balance of the loan. The bank will require that you have this insurance in place before it will close on your loan, and if your coverage lapses at any point during your loan term, the bank may force-place insurance on your behalf and charge you for it.
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