3 Reasons Why Lenders Require Flood Insurance

​Fire and wind damage may be covered by hazard insurance, but flooding damage is often not covered. At the same time, floods are the most common natural hazard in the United States. It has already summarized why it is critical to get flood insurance.

Furthermore, you may have observed that lenders often required the purchase of flood insurance. Here are some facts that will tell you why.

Flood Insurance At Glance
Flooding from external natural causes, such as severe rainstorms, or artificial reasons, is not covered by the hazard insurance portion of typical homes insurance plans. Only flood insurance, which is a separate insurance policy, can protect against this kind of devastation or damage.

Whether you're living in a low-risk or high-risk flood zone, you will be required to get flood insurance for the following reasons:

1. The Lender Can Be Caught In A Losing Position
   Most homeowners must pay for flood insurance every year until the mortgage is paid off. And when a person obtains a mortgage, the house acts as collateral if the borrower fails to make mortgage payments. When a property is financed, the lender usually has a more significant financial interest than the borrower.
   
   If floods destroy one of the lender's assets and the borrower abandons the house and stops making mortgage payments, the lender is in a losing situation. Many lenders demand homeowners to buy flood insurance to remove this risk. 
   
   
2. 20% of Flood Insurance Claims Are From Moderate-To-Low-Risk Regions
   Because flood plains vary over time and nature is unpredictable, high-risk regions are not the only ones impacted by floods. Properties on hills or low-risk regions may be lower, but they are still vulnerable to flooding.
   
   
3. Accepting Federal Disaster Aid Can Be Costly
   Federal disaster relief is seen as a debt with interest that must be repaid to the government. For example, if you get a $50,000 loan with a 4% interest rate, your monthly payment would be approximately $240 for 30 years. In comparison, a $100,000 flood insurance premium costs about $400 per year.

Conclusion
Lenders often need just flood insurance to protect the property structure and prevent more costly expenses. Still, even if your lender does not require you to have flood insurance, you should seriously consider purchasing one. Flood Insurance may provide you with great benefits in the future. 

At American Eagle Insurance, we do our best to ensure that our clients are well-protected with affordable and comprehensive policies. We make sure to go the extra mile to help you with your needs. To learn more about how we can help you, please contact our agency at (225) 667-7377 or Click Here to request a free quote.