Flood insurance is required by law for some high risk homes but only a minority of homes fall under this category. Congress passed some laws requiring that all federally-insured or regulated lenders, for instance mortgages backed by Fannie Mae or Freddie Mac require flood insurance to protect their investment in the property.
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Private insurance companies and the federal government recognized that their association would improve the overall success of the program. Accordingly, insurance companies administer the program, but the federal government funds the insurance.
If a house is destroyed due to the collapse of the land it is built on, and the collapse is due to waves or currents of water, that would be considered a flood and would be covered.
25% of homes with flood claims each year are in low risk zones.