In 1968, Congress created the National Flood Insurance Program (NFIP) in response to the rising cost of taxpayer funded disaster relief for flood victims and lack of private insurance options for flood insurance.
The NFIP is a federally-guaranteed insurance program which is marketed by private insurance agents. In conjunction with this program, the federal government, through the Federal Emergency Management Agency (FEMA), establishes Special Flood Hazard Areas (commonly known as the flood plain or the flood zone).
When a potential homeowner secures financing to buy, build, or improve structures, it is routine for the insurance agent who markets the NFIP, who therefore is an agent of the federal government, to inform the homeowner that he or she does not need flood insurance because he or she lives outside of the flood plain. Therefore, most homeowners do not buy flood insurance; rather they buy homeowners' property and casualty insurance often marketed as "hurricane insurance."
An estimated 35,000 homes outside of the flood plain without flood insurance were destroyed by Hurricane Katrina's storm surge on the Mississippi Gulf Coast. These homeowners relied to their detriment on the federal government with regard to flood insurance.
If assistance is not provided to such a large part of the Gulf Coast population, the potential for renewal is greatly diminished.
A maximum grant of $150,000 for homeowners which meet the following criteria:
- Home must be outside the flood zone established by the federal government.
- Home must have been owner-occupied. (Rental or vacation homes do not qualify.)
- Home must have had homeowner or similar insurance coverage at the time of Katrina's landfall.
These criteria eliminate the possibility of assistance to irresponsible homeowners who lived within a known flood area and yet did not maintain flood insurance, or homeowners who did not maintain standard home insurance.
To prevent duplicate compensation, FEMA assistance and insurance settlements would be deducted from the grant amount.
In return for this financial assistance, a homeowner must: