If I Paid Off My Mortgage Am I Required to Buy Flood Insurance?

Once you make your final mortgage payment, you’re free from all the requirements your lender placed on you as condition of approving your loan, including the requirement that you buy flood insurance for your property. As the home’s sole owner, you enjoy the right to determine how you insure -- or don’t insure -- your property, although you may be required to carry insurance if you receive disaster aid.

Lenders and Flood Insurance

If you buy a home in an area that has been identified as sitting in a flood plain, you’ll likely need to purchase flood insurance as part of your mortgage agreement. All FHA-backed mortgages and many private mortgages place this requirement on homeowners, and it’s easy to understand why: If your home is destroyed by a flood, it’s tempting to walk away from the home rather than make the repairs, sticking the lender with the unpaid balance on a mortgage it can’t sell to recoup its investment. In this case, flood insurance primarily protects your lender.

Recipients of Federal Disaster Assistance

If you receive disaster relief funds following a disaster declared by the president, that money often comes with a caveat that you buy flood insurance to cover the cost of repairs or a replacement building if it is in a high-risk area for flooding. The Federal Emergency Management Agency requires that you maintain flood insurance on the property for as long as you own it. You’re also required to notify the next owner of the requirement if you sell the property. If you fail to cover your home with flood insurance after you receive federal disaster aid, you’re ineligible to receive future relief.

Recomended Coverage

Once you pay off your mortgage, you might look to free up more money in your budget by dropping flood insurance payments. About 25 percent of the National Flood Insurance Program’s claims come from properties in low- to moderate-risk flood areas. A typical flood insurance policy can cover up to $250,000 in damage on your home, and if you elect, up to $100,000 in additional coverage for your possessions lost in a flood The average flood insurance premium is $637 as of 2012, according to The New York Times, but costs vary greatly, depending on factors such as where the home is located and the age of the home.

Relying on Disaster Relief

If you’ve paid off your mortgage, you might be tempted to cut corners and eliminate your flood insurance, and bank on relying on federal disaster relief should your home be damaged in a flood. While you’re banking on suffering flood damage only in a declared disaster -- a choice that can backfire on you -- you also won’t be off the hook financially if you receive disaster assistance. Assistance isn’t a grant, but a loan that you pay back with interest: A $50,000 loan at 4 percent will stick you with a repayment plan of $240 each month for 30 years.

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About the Author

Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.

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