When I speak to people in the real estate industry, nearly everyone understands that flood insurance is required after some magical boundary is crossed (the 100-yr floodplain).  However, few people know much about the intricate details about the actual insurance itself.  I am going to talk about a few quick highlights of a flood insurance policy in this post.  If this is a super boring post to you, check out my previous, much more exciting post about a mole that terrorized a home and other strange tales of horror!

Bryan Speaking

When I asked the question, “Who here knows about flood insurance?”, I only heard crickets chirping.

After sitting through a multi-hour webinar on flood insurance, I think I can help you with the absolute basics. However, I must mention that I was in a FEMA NFIP Agent Training Program.  I cannot recall exactly which people spoke, but everyone that instructed did an excellent job.  Below are the some statements that they felt were most important.

Every building is in a flood zone

While the majority of people think about the structure that will flood because it is near a waterway, the Flood Insurance Rate Maps (FIRM) that are published by FEMA have a designation for areas that are at a lower risk, which is Zone X (or B and C in older maps).  These zones simply means that the risk, or chance of loss, of the structure is less than that of a structure closer to a body of water.

FIRM Zone X

As you can see, there are two different zones on this FIRM. Zone X takes the high ground!

You can purchase flood insurance for any zone

If your structure is located in a Zone B, C, or X, a preferred risk policy is a lower cost option for low and moderate risk sites.  This type of policy is available for individual condo owners, residential, and non-residential risks.

You need to purchase coverage separately for a building and for its contents

There are four types of coverage available in the standard flood insurance policy:

  • Coverage A: Building Property;
  • Coverage B: Personal Property;
  • Coverage C: Other Coverages;
  • Coverage D:  Increased Cost of Compliance.

For this post, just understand that Coverages A & B must both be acquired if you really want to protect what you own.

You can file a claim without a federal declaration of disaster

Flood insurance claims are paid even if a disaster is not declared by the President. Additionally, there is no payback requirement.  If a disaster is declared, the most common form of federal disaster assistance is a loan, which must be paid back with interest.

A flood insurance policy provides limited coverage for basements

This makes sense because guess where the water is going to go…

A basement refers to any area with its floor below ground level on all sides.  This includes sunken rooms, such as a living room.  In a basement, some items are covered, while others are not (it is a long list!).

A flood insurance policy excludes “time-element exposures”

Property insurance has many terms, but what applies here involves tangible business property.  It has two types of value: that of the object and that of producing revenue.  The standard flood insurance policy does not provide for:

  • Loss of revenue or profits;
  • Loss of access or use;
  • Loss from interruption of business;
  • Additional living expenses.

The flood finale

While these items are just a tiny piece of the matrix that creates flood insurance, just be aware of them.  A qualified insurance agent can step you through the details.  Keep in mind to stress to property owners, or those looking to buy, that flood insurance should be acquired for both the structure and their property.

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