FLOOD INSURANCE

1. Eligibility

Flood insurance coverage was generally unavailable until the federal government became involved. 

In 1968, Congress created the National Flood Insurance Program (NFIP) to make flood insurance available to eligible communities through federal subsidization. 

The program is managed by the Federal Insurance Administration (FIA), which is a branch of the Federal Emergency Management Agency (FEMA).

In most cases, communities voluntarily apply for coverage through the NFIP. 

However, the government may also determine that a community is flood prone and require it to comply with federal flood program standards.

Almost any building that is walled and roofed, is principally above ground, and is fixed to a permanent site is eligible for coverage under a flood policy. 

The policy may cover a building, its contents, or both.

2. Coverage

What is the flood program in the USA?

There are two types of flood insurance programs available: emergency and regular. 

The emergency program goes into effect when the community applies to the NFIP and remains in effect until the government finalizes the flood insurance rates for that community. 

Under the emergency program, insureds may purchase limited amounts of flood insurance for buildings and contents at subsidized rates.

 After the regular program goes into effect, additional coverage may be purchased.

 The following table shows the maximum limits of flood insurance available for single-family residential homes.

Maximum Limits for Flood Insurance CoverageEmergency

Both building and contents coverage have deductibles. 

The standard deductible for each coverage is $2,000 under the emergency program and $1,000 under the regular program. 

The deductible applies separately to each building loss and each contents loss on a per occurrence basis. Higher deductibles are available.

The NFIP’s policies cover described property against all direct loss by or from flood at the described location. Indirect financial loss or loss of use is not covered. 

Property is also covered at another place, either above ground or outside of the special flood hazard area, for 45 days when removed by the insured to protect it from flood

. Personal property must be in a building or otherwise protected from the elements while it is removed from the described location.

Flood generally refers to the following

Sewer backup into a dwelling is not covered.

3. Property Not Covered

Flood policies do not cover:

■accounts, bills, currency, deeds, evidences of debt, money, securities, bullion, and manuscripts;

■lawns, trees, shrubs, plants, growing crops, and livestock;

■aircraft, self-propelled vehicles, and motor vehicles;

■fences, retaining walls, outdoor swimming pools, bulkheads, wharves, piers, bridges, docks, and other open structures on or over water;

■underground structures and equipment, such as wells and septic tanks;

■newly constructed buildings that are in, on, or over water; or

■structures that are primarily containers, such as gas or liquid storage tanks (does not apply to silos, grain storage buildings, or their contents).

4. Other Provisions

Single-family dwellings (other than mobile homes) are the only buildings that may be insured on a replacement cost basis under a flood policy. 

Replacement cost coverage is automatically provided when the building is insured for at least 80% of its replacement value or for the maximum amount of insurance allowed by the flood program. All other losses are paid on an actual cash value basis.

Debris removal expenses are covered if the expenses plus the direct loss do not exceed the policy limit.

5. Write Your Own Program

NFIP policies may be sold by private insurance companies through the FIA’s Write Your Own program. Under this system, the FIA sets rates, eligibility requirements, and coverage limitations.

 The participating insurer collects premiums and pays for losses out of these premiums. If the amount of losses exceeds the amount of premium collected, the FIA pays the difference. If the insurer collects more in premiums than it pays out in losses, the excess must be returned to the government.

6. Application Procedures

Applications for the NFIP must be completed in full and must be accompanied by payment in full of the gross policy premium for coverage to go into effect. 

Payment of partial deposit premiums is not permitted.

Coverage does not take effect until after a waiting period of 30 days following the date of application, with the following exceptions.

■There is no waiting period when the initial purchase of flood insurance is made in connection with a loan.

■When a community first enters the emergency or regular program, during the first 30 days policies take effect at 12:01 am on the day after the application and premium payment are mailed.

■When an existing flood policy is assigned to a property purchaser before the title is transferred, coverage takes effect on the date title is transferred.

■After a policy is in effect, requested changes in coverage take effect at 12:01 am on the fifth day after the date the request and premium payment are mailed.

During the waiting period, binders may not be issued to provide flood coverage.