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National Flood Insurance

National Flood Insurance
Mark Cappel
UpdatedNov 26, 2012
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    5 min read
Key Takeaways:
  • An annual premium costs as little as $615.
  • FEMA offers separate insurance for your house or belongings.
  • Flood insurance may be required by your lender.

Quick Look at the National Flood Insurance Program

Every homeowner knows if their home catches fire, their homeowners insurance will pay for most or all of the repairs. Prudent homeowners buy umbrella coverage that protects them financially if someone is hurt while on their property, or if high-value personal property is lost or stolen. Some homeowners believe their umbrella policy also protects them in case of a flood. Wrong!

Typical homeowners insurance does not cover floods resulting from:

  • Hurricanes
  • Tropical storms
  • Heavy rains
  • Snow melt
  • Dam or levy break
Quick Tip

According to FEMA, the average flood insurance policy costs about $615 per year.

In 1968, Congress created the National Flood Insurance Program (NFIP). In exchange for communities agreeing to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding, NFIP underwrites flood insurance to homeowners, renters, and business owners in that community. Today, NFIP insures 5.7 million homes nationwide flood-prone areas, and collects about $3.5 billion in annual premiums.

NFIP Building Property Coverage
• The insured building and its foundation • The electrical and plumbing systems • Central air conditioning equipment, furnaces, and water heaters • Refrigerators, cooking stoves, and built-in appliances such as dishwashers • Permanently installed carpeting over an unfinished floor • Permanently installed paneling, wallboard, bookcases, and cabinets • Window blinds • Detached garages (up to 10 percent of Building Property coverage). Detached buildings (other than garages) require a separate Building Property policy • Debris removal

Source: FEMA

National Flood Insurance Rates

Flood insurance is required for homeowners if their mortgage is federally backed and they live in an area subject to flooding at least once every 100 years. NFIP insurance is available through 90 private insurance companies, which service and sell the policies. The private companies earn about $1 billion annually for these services.

Rates are fixed, and do not vary from company to company or agent to agent. The rates depend on many factors, which include the date and type of construction of the home, area’s level of risk. This is one instance where shopping around will not reveal the best deal.

The average annual flood insurance premium is about $615, according to FEMA, but homeowners in high-risk areas pay $1,200 to $3,000.

Homes and businesses located in moderate-to-low risk areas with federally backed mortgages are typically not required to have flood insurance. A private lender can require flood insurance.

Two Types of Coverage

NFIP Personal Property coverage
• Personal belongings such as clothing, furniture, and electronic equipment • Curtains • Portable and window air conditioners • Portable microwave ovens and portable dishwashers • Personal belongings such as clothing, furniture, and electronic equipment • Curtains • Portable and window air conditioners • Portable microwave ovens and portable dishwashers

Source: FEMA

Flood insurance protects two types of insurable property: building and contents. The first covers the building, the second covers the homeowner’s possessions. Neither covers the land itself.

See the tables at right to learn what NFIP covers. Note that the items listed must be above the ground to be covered. NFIP has different rules and different levels of coverage for areas below the lowest elevated floor (including crawlspaces).

Some damage or losses are not covered by either building or content covers. Not covered are the following, according to FEMA.

  • Damage caused by moisture, mildew, or mold that could have been avoided by the property owner.
  • Currency, precious metals, and valuable papers such as stock certificates.
  • Property and belongings outside of a building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools.
  • Living expenses such as temporary housing.
  • Financial losses caused by business interruption or loss of use of insured property.
  • Most self-propelled vehicles such as cars, including their parts

Two Ways to Measure Insured Value

NFIP pays for direct physical damage to the insured property up to the replacement cost or Actual Cash Value (ACV) of the actual damages or the policy limit of liability, whichever is less. The rules are simple.

  • Contents coverage must be purchased separately.
  • NFIP covers just the replacement cost or ACV of actual damages, up to the policy limit.
  • NFIP does not pay more than the policy limit.
Quick Tip

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See the table below to learn more about the RCV and ACV rules.

Replacement Cost Value (RCV)Actual Cash Value (ACV)
Replacement Cost Value (RCV) is the cost to replace that part of a building that is damaged (without depreciation). To be eligible, three conditions must be met: 1. The building must be a single-family dwelling, and 2. Be your principal residence, meaning you live there at least 80 percent of the year, and 3. Your building coverage is at least 80 percent of the full replacement cost of the building, or is the maximum available for the property under the NFIP.• Actual Cash Value (ACV) is Replacement Cost Value at the time of loss, less the value of its physical depreciation. • Some building items such as carpeting are always adjusted on an ACV basis. For example, wall-to-wall carpeting could lose between 10-14 percent of its value each year, depending on the quality of the carpeting. This depreciation would be factored in the adjustment. • Personal property is always valued at ACV.

The value of flood damage in the Dwelling Form is based on either Replacement Cost Value (RCV) or Actual Cash Value (ACV). Source: FEMA

Multiple Loses

Property owners of "severe repetitive loss properties" may be eligible for a FEMA mitigation grant for property improvements that reduce the likelihood of future flood damages. Property owners who refuse the grant money could be required to pay increased flood insurance premiums.

A property is defined as a "severe repetitive loss property" when either the property has had four or more separate flood claim payments and each claim payment exceeds $5,000, or the property has experienced at least two flood claim payments and the cumulative payments exceed the value of the property.