Georgia Property & Casualty Practice Exam

Mortgage lenders require flood insurance on properties located within a floodplain, which is at risk of flooding on average once every how many years?

1. Five years

2. 10 years

3. 100 years

4. 500 years

The correct answer is: 100 years

Mortgage lenders require flood insurance on properties located within a floodplain because these areas are considered to have a higher risk of flooding. The term commonly used in floodplain management is the "100-year flood," which refers to a flood event that has a 1% probability of occurring in any given year. This does not mean that such a flood will occur only once every 100 years; rather, there is a consistent 1 in 100 chance of such flooding happening in any given year. By requiring flood insurance, lenders aim to protect their investment in properties that are vulnerable to these frequent and potentially catastrophic flooding events. Properties located in zones designated as a floodplain are at a heightened risk, and having flood insurance helps mitigate the financial impact of flooding for both homeowners and lenders. Thus, the requirement for flood insurance is directly tied to the designation of flood risk, which is quantified by the 100-year flood standard. This understanding is crucial for anyone involved in property transactions or insurance in flood-prone areas.