Flood Insurance

Myth Busting: Is Flood Insurance Included in a Home Policy?

The Myth – My home policy covers me for a flood. I added the sewer backup coverage…

WRONG!!!

A flood is entirely different. To understand, when and why you need flood insurance we must first understand what a flood is. The Federal Emergency Management Agency (FEMA), defines of flood as:

Flood.
A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:

– Overflow of inland or tidal waters; or
– Unusual and rapid accumulation or runoff of surface waters from any source; or
– Mudflow;or
– Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

So there you have it. It is under these circumstances that you would need a flood policy. If you don’t have a policy you would not be covered under a standard home policy. Now with that said you also may not be in an area that requires it. This is also decided by FEMA and is called the FIRM zone.

Flood Insurance Rate Map (FIRM). Official map of a community on which FEMA has delineated the Special Flood Hazard Areas (SFHAs), the Base Flood Elevations (BFEs) and the risk premium zones applicable to the community.

This becomes much more important when a mortgage is being taken out on the property. The mortgage company can and will require flood insurance on the premises. It is extremely important to consider this fact when purchasing a home. This can add several hundred if not thousands of dollars to your insurance premiums per year. Also it takes much more time for a Flood policy to be approved through underwriting as everything is rated through FEMA. So if you do require this type of policy start researching early! Also, if this is not for a loan closing FEMA has mandated a 30 day waiting period. Basically you can’t run out and buy a policy right before a flood hits.

How do I buy a policy?

Great question! Most major insurance companies underwrite these policies for FEMA. So the easy answer is try your current provider first. If they can’t help you another company surely will be able to. It is important to remember FEMA mandates the rates, so you should in theory be able to get the same premium no matter what company you get a quote with! What you need to remember while searching is that some companies will actually determine what FIRM zone you are in and some will estimate. If you want to know how accurate the quote is just ask the agent providing the quote. If they don’t know what you mean chances are their quote will not be precise. After you have determined what FIRM zone you are in the next part of the proposal that matters is the amount of coverage you need. FEMA caps the dwelling coverage at $250,000, and contents at $100,000. Usually if you are being forced to purchase a flood policy you will opt to choose the amount of coverage that matches what your current mortgage is. If it is more than $250,000 you would leave it at the maximum.

Don’t forget to cover the contents!

Flood Insurance

Often forgotten, contents are not covered in a standard risk flood policy. You will need to specifically determine the amount of coverage you get. This is an additional cost. Customers who are looking for the cheapest possible policy can opt to not take this coverage. Just be aware, your contents will not be covered in Flood if you do not take this coverage. Your standard home policy will not cover this.

The next part of the quote that is super important is the deductible. FEMA allows up to a $10,000 deductible now. As long as the mortgage company approves this, it will dramatically reduce your premium. Customers are generally ok with a higher deductible for these policies because when you are filing a claim it is for a total loss not a partial loss.

You will be determined to be in 1 of 2 different zones. A preferred risk or a standard risk. If you are in a preferred risk your premium will be lower. This is solely based on where you are located on a flood map, there is nothing you can do to change this

What is an Elevation Certificate?

Most companies are now requiring an elevation certificate for any building built after the year 1970. This is a certificate you obtain from a land surveyor and is an additional cost. It can however reduce your insurance premium if the results are favorable. A favorable result is essentially the building being elevated. This reduces the premium for the policy. If you have an elevation certificate you should provide it to the insurance company providing you with a quote as it will make your quote very accurate.

So To Recap

  • Flood Insurance is not included in your Homeowners Policy

  • Know how much coverage you need

  • Use a higher deductible

  • Get a quote with a company that runs you FIRM zone

  • Get an elevation certificate

  • Unless this is for a loan closing there is a 30 day waiting period!

Common Flood Insurance Terms

Flood

A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:

– Overflow of inland or tidal waters; or
– Unusual and rapid accumulation or runoff of surface waters from any source; or
– Mudflow;or
– Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

FIRM ZONE

Flood Insurance Rate Map (FIRM). Official map of a community on which FEMA has delineated the Special Flood Hazard Areas (SFHAs), the Base Flood Elevations (BFEs) and the risk premium zones applicable to the community.

Grandfathering

An exemption based on circumstances previously existing.
Under NFIP statutory grandfathering, buildings located in Emergency Program communities and Pre-FIRM buildings in the Regular Program are eligible for subsidized flood insurance rates.
Under NFIP administrative grandfathering, Post-FIRM buildings in the Regular Program built in compliance with the floodplain management regulations in effect at the start of construction will continue to have favorable rate treatment even though higher Base Flood Elevations (BFEs) or more restrictive, greater risk zone designations result from Flood Insurance Rate Map (FIRM) revisions. Policyholders who have remained loyal customers of the NFIP by maintaining continuous coverage (since coverage was first obtained on the building) are also eligible for administrative grandfathering.

Preferred Risk Policy

A lower-cost Standard Flood Insurance Policy (SFIP) written under the Dwelling Form or General Property Form. It offers fixed combinations of building/contents coverage limits or contents-only coverage. The PRP is available for property located in B, C and X Zones in Regular Program communities that meets eligibility requirements based on the property’s flood loss history. It is also available for buildings that are eligible under the PRP Eligibility Extension.

Standard Flood Insurance Policy

Dwelling Form. The policy form used to insure a building designed for use as a residence for no more than 4 families or a single-family unit in a residential building under a condominium form of ownership. This form is also used to insure residential contents in any building. The owner of a residential building with 5 or more units can use this form to insure contents only in his or her own residential unit.

General Property Form. The policy form used to insure a non-residential building or a 5-or-more-unit residential building not eligible for the Residential Condominium Building Association Policy (RCBAP). This form is also used to insure non-residential contents in any building or a building owner’s residential contents located in multiple units within a building with 5 or more units.

Residential Condominium Building Association Policy (RCBAP). The policy form used to insure a building, owned and administered as a condominium, containing 1 or more units and in which at least 75% of the floor area is residential. The building must be located in a Regular Program community.