Floods are not covered under typical property policies, so you must purchase a separate flood insurance policy to ensure you have coverage for flood losses. Flood insurance can be purchased through private market insurance agents and companies, but the federal government underwrites the risk through the National Flood Insurance Program (NFIP) and bears all costs.
The NFIP defines flood as a temporary overflow of inland or tidal waters onto normally dry land, or run-off water from rain. Floods also include mudflows onto dry land, and water-caused erosion or collapse of land along a lake, pond, river, or stream, which then results in the temporary overflow of water onto normally dry land.
The NFIP receives the premiums paid by the flood insurance customers and pays out the claims and expenses of the program. The NFIP establishes one set of policy terms and rates for the various flood insurance policies. As a result, comparison-shopping for flood insurance is not necessary, but a buyer should carefully discuss and review the conditions and requirements of the applicable flood insurance policy with his or her agent or company.
The NFIP has a Regular Program and an Emergency Program. A community can only participate in the Regular Program if the community has adopted all local ordinances. Often, a community will participate in the Emergency Program while it awaits approval for participation in the Regular Program. The Emergency Program is only available for a limited amount of time and offers less coverage than the Regular Program. If the community has not adopted all ordinances by the end of the limited period of time, it can no longer participate in the NFIP.
To find out if your community participates in the NFIP, contact an agent who writes flood insurance, or visit floodsmart.gov to see if your community is listed.
There is a mandatory 30 day waiting period before a new flood insurance policy becomes effective, unless you are obtaining flood insurance in connection with a home purchase or mortgage refinancing.
Therefore, it is prudent to purchase your flood insurance well before you need its protection. Also, depending on the type and location of the building being insured, you may have to complete certain flood insurance-specific forms, at least one of which (Elevation Certificate) must be completed by a qualified individual, such as an engineer.
The NFIP offers three flood insurance policy forms. For each of the policies, contents coverage can be purchased. Policy types vary based on how a building is occupied.
1. Dwelling Form – Provides building coverage for residential buildings of no more than four families or single-family homes (including manufactured homes) including limited coverage for detached garages. The NFIP also has a Preferred Risk Policy (PRP), using the Dwelling Form, for those properties in low to moderate flood risk areas. In order to qualify for the PRP, the property must be located outside the Special Flood Hazard Areas (SFHAs) and have limited flood losses. Due to the lower risk, premiums for PRPs are substantially lower than for the standard Dwelling Form.
2. General Property Form – Provides building coverage for nonresidential buildings, residential buildings of more than four families, manufactured homes, and residential condominium buildings if less than 75 percent is for residential use (and then coverage is provided only to the units owned in common by all unit owners).
3. Residential Condominium Building Association Policy (RCBAP) – Provides building coverage for the residential condominium building, including all units within the building and improvements made within the individual units. Owners of individual units can purchase building and contents coverage through the Dwelling Form.
The NFIP sells flood insurance primarily through the private insurance industry and a program called the “Write Your Own” (WYO) Program. WYO was established so that private insurers could sell flood insurance to their customers, providing customers with one point of contact for all of their property insurance needs.
If your insurance agent does not sell flood insurance, you can find one in your area at the FloodSmart website at floodsmart.gov, or by calling (800) 427-2419.
The NFIP was created to provide a fair way to protect individuals and businesses from financial loss due to flood damage. The NFIP covers direct physical loss to buildings and contents due to flood and costs associated with bringing a structure into compliance with local building ordinances, with limitations as explained below. Flood insurance coverage is subject to exclusions, limits, and conditions for eligibility. Property not covered, as well as losses not covered, are explained in the policy. It is important to discuss the exclusions with your insurance agent to determine the need for additional or alternative insurance coverage.
What is Covered by Flood Insurance
Direct physical losses from flood are covered. But, other “flood” coverage is provided as well. For example, loss caused by flood-related erosion is also covered. But, the erosion must be due to unusually high water currents or waves, an unusual tidal surge, a severe storm, or a flash flood. Overflow of water or mud is also covered. If in doubt about types of loss covered, refer to a flood policy or ask your insurance agent.
Coverage Provided by Flood Insurance
Flood insurance policies are separated into four coverage sections:
Coverage A – Building; also provides limited coverage for attached structures. For example, for a garage to be covered, it must be functioning as a garage.
Coverage B – Personal Property; has limitations on property in the basement. Coverage for basement contents is only provided for items critical to the habitation of the dwelling, such as heaters, air conditioners, and oil tanks. Note: Contents coverage under a standard flood insurance policy must be purchased separately.
Coverage C – Other Coverage; costs incurred to protect the property from flood damage. Examples include: 1. Debris Removal; 2. Loss Avoidance; a. Sandbags, b. Supplies & Labor, and c. Transporting Property to Safety; and 3. Pollution Damage.
Coverage D – Increased Cost of Compliance; provides for the costs to comply with state and local regulations concerning repair and reconstruction of flood damaged properties. Liability under Coverage D is limited to $30,000.
Exclusions (what is not covered by Flood Insurance)
Property not covered by flood policies includes personal property outside the enclosed building, buildings or personal property in perilous locations affected by high tides, open buildings used to house boats, and numerous other types of property and vehicles. An important exclusion is loss resulting from earth movement, even if caused by flood. Exclusions are numerous, detailed, and include loss of revenues or profits, loss of use of the property, and business interruption losses. Review your policy to ensure that you understand the coverage and limitations.
Deductibles (self-insurance or the portion of a claim that is not paid by insurance)
The standard deductibles are $500 for most newer buildings. Older buildings (usually pre-1974) will have a $1,000 deductible in high-risk areas. No deductibles apply to Coverage C and Coverage D. Other deductibles are available ($5,000 for Residential, $25,000 for Residential Condominium Building Association Flood Policy (RCBAP) and $50,000 for Nonresidential). Customers can select different deductibles for the building and the contents; the deductibles apply separately.
Coinsurance Provision (requirement to purchase a defined minimum
amount of insurance)
To avoid a co-insurance penalty at the time of loss, the RCBAP requires that the insured purchase coverage of at least 80% of the replacement cost of the subject building, but no more than the maximum amount of insurance coverage available under the NFIP. This requirement does not apply to the Dwelling and General Property Forms. NFIP coinsurance provisions may differ from those in other property insurance policies, such as a homeowners insurance policy. Consult with your agent if you have any questions regarding coinsurance provisions.
Coverage Limits Available
The following table summarizes the maximum limits of coverage available under the Regular and Emergency Flood Insurance Programs. If additional coverage is needed, you should refer to your agent. The NFIP does not provide coverage above these limits.
Claim Settlement Provision
Claims are settled on either a Replacement Cost Value (RCV) or Actual Cash Value (ACV) basis. RCV is the cost to replace the damaged property, with no deduction for depreciation of the damaged property. RCV is not the same as tax basis valuation for tax assessments, nor is it the market value of your home. ACV is the cost to replace your damaged property, reduced by an allowance for depreciation.
The applicable claim settlement provision for the building depends on the type of risk:
1. Single Family Homes:
Settled on a Replacement Cost Value basis if two conditions are met:
a. Primary Residence, and
b. Insured to at least 80% of replacement cost, at the time of loss.
Otherwise, settled on an Actual Cash Value basis.
2. Residential Condominium Building Association Policy:
Settled on a Replacement Cost Value basis. But if you’re insured to less than 80% of replacement cost, the coinsurance clause reduces the amount of payment.
3. All Others:
Settled on an Actual Cash Value
Actual Cash Value is the basis for adjusting all contents losses.
The deductible is the amount that must be paid by the policyholder before any payment is made by the NFIP. The larger the deductible you choose, the lower your premium. However, choosing a larger deductible to reduce premium will make you responsible for more of the financial loss should a flood occur.
Community Rating System Discounts
The NFIP has a Community Rating System (CRS) that provides premium discounts in those communities that undertake floodplain activities beyond the basic requirements of the National Flood Insurance Program. These discounts can be as much as 45% for buildings in the floodplain and as much as 10% for buildings outside the floodplain. CRS discounts do not apply to Preferred Risk Policies.
Summary of Loss Mitigation Devices/Home Improvements
The first and most important information you need to know before you can mitigate flood risk is the elevation of the structure. All flood mitigation is focused on keeping your home and belongings above the water line or projected flood elevation. Projected flood elevation is commonly referred to as the “base flood elevation” or BFE, and BFE is the projected level of flooding for a 100-year flood event or event for which there is a one percent probability in any given year.
Below are some mitigation steps to help reduce flood losses:
1. Elevate. Elevating the location of the main electrical switchbox, electrical outlets, and appliances above the BFE can reduce flood losses. Likewise, placing appliances like washer/dryers, furnaces and heaters above the BFE or above the lowest floor level will also reduce losses.
2. Avoid backflow. If your sewer system doesn’t have a backflow valve, hire a licensed plumber to install one. Install a floating floor drain plug and have a plumber regularly inspect it to ensure it is functioning properly.
3. Anchor appliances. Fuel tanks, such as propane tanks, may float away, tip over, break, or otherwise cause additional damage due to flood waters. Check all tanks, and similar items that may float away and cause damage, and secure them in accordance with local building codes.
4. Understand your land. Inspect low-lying areas of your property that are exposed to flood waters to evaluate how water flows around your home and make sure that all gutters and drains are working properly.
5. Get to high ground. Choose a home or apartment outside of low lying areas or on an upper floor if you reside in a multi-family building.
Visit the Federal Alliance for Safe Homes - (FLASH®) website at flash.org for animations, information and videos on how to reduce flood damage.
Note: The flood insurance deductibles and policy limits included in this Guide were accurate at the printing; however, you should check with a flood insurance agent, visit www.floodsmart.gov or call (888) 379-9531 to verify current rates.