Understanding Flood Insurance Is More Crucial Than Ever

Flood insurance is typically excluded on a standard property policy and must be purchased separately. It’s available from both the National Flood Insurance Program (NFIP) and the private insurance market.

Flood insurance may be required if you have a mortgage from a federally regulated lender and you live in a high-risk flood area. However, even in lower risk zones, it can provide peace of mind as we continue to see.

Floods can occur due to various natural and human-induced factors, such as:

• Heavy rainfall – excessive precipitation that exceeds the capacity of soil or drainage systems
• River overflow – when rivers exceed their banks due to high water levels
• Storm surges – coastal flooding caused by storms, especially hurricanes and cyclones
• Melting snow and ice – rapid thawing during warmer weather, adding large volumes of water to lakes and rivers
• Urban flooding – water accumulation in cities due to inadequate drainage systems

The NFIP was created to help homeowners, renters and businesses protect themselves from flood damage and to reduce the financial impact of floods on the nation. Managed by the Federal Emergency Management Agency (FEMA), the NFIP offers flood insurance to property owners in participating communities that agree to adopt and enforce floodplain management standards to reduce future flood risk. These are typically communities where it’s difficult to obtain private flood insurance, such as a coastal area.

The NFIP offers flood limits for residential homes up to $250,00 for the structure with $100,000 for personal property (if purchased). For non-residential/commercial buildings, NFIP offers up to $500,000 for the structure and up to $500,000 for contents/property (if purchased).

It is important to understand that NFIP coverage is limited. This means if you purchase a flood policy on a million-dollar home and it gets swept away in flood waters, the most you would recoup under their NFIP policy would be $250,000 for the structure plus an additional $100,000 for contents (if purchased). Additional coverage may be available through the private insurance market.

It’s also important to note that the NFIP offers these policies via the normal insurance market. Meaning you would purchase an NFIP policy through a normal carrier/broker. That carrier may also offer a private policy for purchase.

NFIP policies are not underwritten at the time the application is submitted. The application is taken at face value and priced accordingly. When a flood occurs, the adjuster provides the underwriting information to FEMA. If an application is incorrectly completed, additional premium may be due before any payment is made for flood damages. And there are very strict rules for how an NFIP adjuster must handle a claim. That’s why NFIP policies include lengthy sections in bold to point out what is NOT covered in the flood policy.

Some insureds may believe the private insurance market is best for flood coverage. It’s important however to pay close attention to the private sector policy form. It often includes language that would make it necessary for an insured to have BOTH an NFIP policy and a private party for coverage if the property is in a high-risk zone. If the insured did not purchase the underlying NFIP policy, the private party insurance would not pick up coverage until the insured pays out $250,000 for the structure and $100,000 for contents (if purchased). It is imperative to understand your policy in advance of a flood.

The NFIP program requires that property owners buy a separate policy for each building on their property. That means a property owner with several buildings at the same address would need multiple flood policies for full coverage. This is often misunderstood, leaving insureds without adequate coverage for all buildings on their property. There is an exception for a non-commercial policy for structures that are detached from the primary residential structure and do not serve as a residence.

Understanding your flood coverage is very important. Your McGriff agent can assist in making sure your property coverage is up to date and exactly what you need.