FEMA is not a replacement for insurance coverage,' risk management expert says. Here's why

• While the Federal Emergency Management Agency typically provides aid after federally declared natural disasters, its not designed to be a replacement for your home insurance policy, says a risk management and insurance professor.
• What's more, the agency itself is facing significant changes.
• President Donald Trump said earlier this month that the administration plans to “start phasing [FEMA] out” after hurricane season.

As the Trump administration moves to wind down the Federal Emergency Management Agency, changes could make it harder for homeowners to recover from a natural disaster, experts say.

That underscores a point insurance experts make: FEMA provides aid for states and individuals in the event of a federally declared natural disaster, but it's not meant to replace your home insurance policy, according to Charles Nyce, a risk management and insurance professor at Florida State University.

“There's a lot of different things that FEMA does really well, but one of the things they're not designed for is to be a replacement for insurance coverage for individuals,” said Nyce.

How FEMA could change

President Donald Trump said in a June 10 press briefing that he plans to “start phasing [FEMA] out” after this year's hurricane season, which spans from June 1 to November 30.

Trump also said the administration would “give out less money” in disaster aid to states and “give it out directly” from the president's office: “We're going to do it much differently.”

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“Over the next couple of months, we'll be working on reforms and what FEMA will look like in the future as a different agency as under the Department of Homeland Security,” DHS Secretary Kristi Noem said in the briefing.

Asked about the potential changes, a FEMA spokesperson told CNBC that the agency is “laser focused” on disaster response for this hurricane season and “protecting the American people.”

The Department of Homeland Security proposed to cut $646 million from FEMA's budget for fiscal year 2026, according to a May letter from the Office of Management and Budget. In April, FEMA announced it was ending a disaster prevention and mitigation grant program, returning $882 million in funding to the Treasury.

Such actions are “reckless,” Sen. Raphael Warnock, D-G.A. wrote in a June 5 letter to Noem.

The administration and DHS “have haphazardly and irresponsibly worked to dismantle the nation's lead disaster response agency without any workable alternative or sense of direction,” he wrote.

“FEMA is not going to be able to operate in the same way that it has in the past,” said Jeremy Porter, head of climate implications at First Street Foundation, a nonprofit research organization focused on climate risk.

He and other experts say that the administration's proposed changes would put more responsibility on states and municipalities to come up with the financial resources to help individuals recover from natural disasters.

What kinds of aid FEMA provides

While FEMA provides grants and resources to help individuals and municipalities recover from federally declared disasters, the aid is designed to be a supplement for something that's not covered by your homeowners insurance policy, Nyce said.

The way the agency provides aid to individual homeowners is by giving small grants available for uninsured losses, Nyce said. The money can be used to cover temporary housing for a day or week, for example.

The average payout for individual assistance grants through FEMA was $3,522 from 2010 to 2019, according to a 2024 report by the Brookings Institution, a non-partisan think tank in Washington, D.C.

The agency also offers disaster loans with low interest rates through the Small Business Association, which cover losses not covered by insurance, grants or other resources. According to a FEMA release from earlier this month, interest rates can be as low as 2.688% for homeowners and renters, 4% for businesses and 3.25% for nonprofit organizations, with terms of up to 30 years.

“They're really designed as a way for people just to have enough money to figure out what their next steps are,” Porter said.

Typically, FEMA will assist a state's emergency management agency after a disaster, said Nyce. But now, the expectation is that states will take on a large role in disaster recovery.

“With cuts at the federal level for disaster recovery, it's going to put more of a financial burden on the states to enable recovery,” Nyce said.

'More of an onus on citizens to be prepared'

It's uncertain how much and what kind of FEMA natural disaster aid will be available for individuals after the agency goes through changes, experts say.

“It puts more of an onus on citizens to be prepared,” Nyce said.

One way to do that is by taking a closer look at your home insurance coverage. See if you need to make changes to your policy — you want to avoid being underinsured, or risk your insurer paying less than the full claim. You might also need additional coverage, such as flood insurance.

Make sure you have enough supplies to “fend for yourself for a day or two, or three,” Nyce said. That includes dry food, batteries, water and a radio. It's also smart to collect key financial documents to store in a safe place.

Additionally, if officials in your area are advising residents to evacuate in the face of a disaster, you may want to consider doing so rather than trying to shelter in place at home, he said.

“It may be more prudent to leave,” Nyce said.