A homeowner's guide to natural disasters.

Preparing for a Flood

Flood coverage is usually not provided by typical property insurance policies, so it is most likely that unless you’ve purchased a flood insurance policy, you do not have coverage for flood losses. Flood insurance is available through many different insurance companies, but the federal government, through the National Flood Insurance Program (NFIP), alone bears the risk. According to the NFIP, a flood is a temporary overflow of inland or tidal waters onto normally dry land, or run-off water from rain, etc. 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 flood insurance products that the NFIP offers are generally much more complicated than those offered by most other property insurers. The NFIP owns the premiums paid by the flood insurance customers and they pay 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. 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. For example, a community will participate in the Emergency Program while it waits 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 that writes flood insurance, or go to the Federal Emergency Management Agency (FEMA) website at www.fema.govopens in a new window to see if your community (or county) is listed.

If you choose to purchase flood insurance, you should know that it takes a minimum of 30 days for your flood insurance policy to become effective, unless you are obtaining flood insurance in connection with purchasing a home or refinancing a mortgage. It is prudent, therefore, 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 (an Elevation Certificate) must be completed by a qualified individual such as an engineer.

Available Flood Insurance Policies

The NFIP offers three flood insurance policy forms. For each of the policies, contents coverage is provided if 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 no repetitive 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 the named insured is the condominium association (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.


How Flood Insurance is Sold

The NFIP sells flood insurance primarily through the private insurance industry.
The Write Your Own (WYO) Program was established so that private insurers could sell flood insurance to their customers. This allows customers to have one point of contact for all of their property insurance needs.

Ask your current insurance agent if he or she writes flood insurance. If not, you can find an agent who writes flood insurance in your area by going to the Floodsmart website at www.floodsmart.govopens in a new window, or by telephone (1-888-4FLOODS).


What Choices of Coverage Do You Have?

Coverage Overview
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.

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. Again, remember to review your policy, to assure that you fully understand the coverage and limitations.

Deductibles (the portion of a claim that is not paid by insurance)
The standard deductibles are $500 for most new construction and $1000 for older construction (usually pre-1978). No deductibles apply to Coverage C and Coverage D. Other deductibles are available ($5,000 for Residential, $25,000 for 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)

The Residential Condominium Building Association Flood Policy 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. Replacement Cost Value is the cost to replace the damaged property, with no deduction for depreciation of the damaged property. It is not to be confused with the tax basis valuation for tax assessments, nor is it the market value of your home. Actual Cash Value 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:

Type of Coverage
Residential Building
$35,000/ $100,000**
Residential Contents
Non-residential Building
Non-residential Contents $500,000 $100,000
*For RCBAP, total limit = $250,000 x # of units
**The higher limit shown applies to Alaska, Hawaii, Guam and the U.S. Virgin Islands.

Claim Settlement Provision
Claims are settled on either a Replacement Cost Value (RCV) or Actual Cash Value (ACV) basis. Replacement Cost Value is the cost to replace the damaged property, with no deduction for depreciation of the damaged property. It is not to be confused with the tax basis valuation for tax assessments, nor is it the market value of your home. Actual Cash Value 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.


Ways You May Be Able to Affect Your Premium

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 lesser your premium. However, you will bear a larger portion of any loss that may 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.


Availability Of Insurance

What can Affect Availability of Flood Insurance in a Certain Area?
Flood insurance in the U.S., as provided by the NFIP, is available in over 20,000 participating communities through private insurance companies. Check with your insurance agent to find out if your community participates.

What can Affect Flood Insurance Availability for a Certain Home?
You can buy flood insurance if your home or business is located inside or outside of a floodplain, with very limited exceptions, as long as it is located in a participating community. The only homes restricted from purchasing flood insurance from the NFIP are newer homes located in certain environmentally sensitive coastal areas. Your insurance agent or local community official should be able to tell you if there is such an area in your community.

Other Ways to Reduce Your Exposure to Flood Losses

Summary of Loss Mitigation Devices/Home Improvements
The most important loss mitigation factor in reducing flood risk is the elevation of the structure. This means making sure that your home is at or above the projected flood elevation, a level that is commonly referred to as the “hundred-year flood level.”

Here are other things that can be done to help reduce future flood losses:

1. Preservation by elevation. Raising the location of the main electrical switchbox, electrical outlets, and appliances above the lowest floor level protects against some flood losses. Placing a heater and furnace on blocks also reduces exposure to floods.

2. A finger in the dike. If your sewer system doesn’t have a backflow valve, hire a licensed plumber to install one. Also, ask the plumber to check the function of your floating floor drain plug, or to install one, if one doesn’t already exist.

3. Anchors aweigh! 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. Take a look. Other ideas may arise when you inspect low-lying areas of your property, which are exposed to flood waters. You might also pay a plumber or building inspector to do an inspection with an eye toward reducing flood damage.

5. Going up! If you rent, move to an upper floor.

Visit the Federal Alliance for Safe Homes, Inc. (FLASH) website at www.flash.orgopens in a new window for other information about reducing your exposure to flood damage.