Fifteen years ago, in the wake of devastating urban riots, the Federal Crime Insurance Program was created to encourage businesses to remain in inner cities, despite the threat of street crime. But the small program faces extinction, unless Congress rescues it.

Since 1980, Democratic lawmakers and the Reagan administration have been wrangling over the program, which costs about $10 million annually to cover claims that exceed premiums.

The administration has argued that the program should be abolished because it serves a relatively small number of people and that their needs could be handled more effectively by state governments.

Proponents, however, argue the program serves small businesses and moderate-income residents who cannot afford the premiums that private insurance agencies would charge for coverage in crime-ridden areas. They say states with high crime losses could not provide the necessary subsidies for such a program.

The program had been scheduled to expire today, the last day of fiscal 1985. However, two weeks ago, the House passed legislation extending a number of programs, including crime insurance, at least until Nov. 14. The Senate may vote on the extension today.

The House Banking, Finance and Urban Affairs Committee included a one-year extension of crime insurance in the housing authorization bill the full House probably will vote on early next month, but the Senate Banking Committee is not expected to include a similar extension in its bill, a Senate committee source said.

Sen. Alfonse M. D'Amato (R-N.Y.) has proposed an amendment to the fiscal 1986 appropriations bill for the Housing and Urban Development Department and independent agencies to include $10 million to help states provide low-cost crime insurance. The money would be apportioned on the basis of the number of federal policies now in force in each state. New York, which has more than half of the policies, would get nearly $6 million under this formula.

House backers may make extension of the crime insurance program the price for renewal of the Federal Flood Insurance Program, which is also about to expire, according to a House subcommittee staff member. Some members say they think that crime insurance "is as important as flood insurance," which the Senate Banking Committee's bill would extend, the staff member said. The Reagan administration has said it would like to phase out flood insurance by 1988.

The crime insurance program provides up to $15,000 worth of robbery and burglary coverage for businesses at premiums based on annual gross receipts and the degree of risk. For instance, owners of small grocery stores, considered one of the most vulnerable types of business, pay $592 a year for $10,000 worth of burglary insurance, and $702 for $10,000 in robbery coverage. Homeowners pay premiums ranging from $60 a year for $1,000 worth of coverage to $120 for $10,000 worth of protection against burglaries and robberies. There is no income test, but policyholders must be able to demonstrate that their doors and windows were locked before they can qualify for reimbursement.

In a July report on the housing bill, the House Banking Committee said, "Many small businesses in high crime areas will not survive" without the insurance program. The federal insurance "is a necessary component of retaining small businesses in our inner-city areas," the report said.

Advocates of crime insurance say the Federal Insurance Administration (FIA) has failed to market and publicize the crime insurance program adequately, resulting in a sharp decline in the number of policies issued. The administration then is able to point to the decrease in policies as evidence that the program is no longer needed, the critics contend.

The Federal Emergency Management Agency, the parent agency of the FIA, began notifying policyholders several months ago the program would expire on Sept. 30, provoking the ire of House Banking Committee members.

"The committee directs FEMA to discontinue this high-handed effort to kill the program on its own and leave the decision up to the Congress," the Banking Committee said in its July report.

James M. Rose Jr., executive assistant to the federal insurance administrator, said the number of policies in force has dropped from a peak of about 85,000 in 1980 to approximately 40,000 at the end of July, but he denied that the FIA had contributed to the decline by not publicizing the program.

The insurance administrator's staff regularly holds workshops to educate the private insurance agents and brokers who sell the government insurance policies, Rose said. He acknowledged that FIA has spent less money on marketing and publicity since 1980 but said this was because higher expenditures had not been "effective" in the past. Rose also questioned whether "we should use tax money to compete with the private sector."

When the program was started, Rose said, "it was believed that there was a massive unavailability of insurance" for residents and merchants in inner cities hit by riots. "But the growth of the program," he said, "was never great.