FLOOD…. The Forgotten Insurance!
By Micheline Patterson
ONLY Flood Insurance Protects against the Risk of Damage from Floods!
Your business or home has a 26 percent chance of being damaged by a flood during the course of a 30-year loam, compared to a 9 percent chance of damage or loss due to fire. Floods can occur almost anywhere at anytime - not just near water. Flooding is the #1 natural disaster in the United States, and has caused nearly $1.6 million in damages in Alaska and $23.8 billion in the U.S. over the last 10 years. Flood coverage is sold separately from all other types of insurance coverage.
Protection from flood damage is available for protection from loss for commercial buildings, residential buildings/homes, and renters’ personal belongings. Coverage is available up to $250,000 for single-family, multi-family and other residential buildings and up to $100,000 for contents coverage. Non-residential buildings, including small businesses, can acquire coverage up to $500,000 for the building and $500,000 for contents. Coverage for damage from flood is not covered in any other type of policy except a flood insurance policy.
Lender placed vs. Owner/Buyer placed Insurance
If you are applying for a building or home loan, the lender may take the initiative to place insurance coverage for you in order for you to meet the loan requirements. This is known as “Lender Placed” insurance coverage, and it often may be more geared to protecting the lender’s interests rather than your interests. Additionally, lender placed coverage could cost you up to three to four times more than if you placed the insurance yourself through an insurance agency/agent. Lenders will notify borrowers if Flood Insurance is required as a condition of the loan (National Flood Insurance Reform Act of 1994). Additionally, there is no 30 day waiting period for flood insurance purchased in connection to a mortgage loan. Flood Insurance is mandatory if the lender is federally regulated and your property is located in a Special Hazard Area.
What is a Special Hazard Area?
This is a designated area with the highest risk of flooding. Flood Insurance Rate Maps show high risk areas as Zones A, AE or V. However, nearly 25 percent of all Flood claims come from medium or low-risk flood areas which are listed as Zones B, C and X. Anyone can purchase Flood Insurance whether or not they are in a Special Hazard Area. If you already have Flood Insurance, and are selling your business or home, you can assign your current Flood Insurance policy to the buyer at the time of closing.
How are Flood Insurance Premiums Calculated?
Flood Insurance premiums are based upon the elevation level of the building or home. A “Flood Elevation Certificate” is necessary before flood premiums can be determined. This certificate must be completed by a Licensed Land Surveyor or Professional Engineer who is authorized by law to certify elevation information. Flood Elevation Certificates cost between $200.00 and $1000.00 to complete. Flood Elevation certificates should be kept on file with your local Community Planning Department as required by the National Flood Insurance Program (NFIP) regulation 44 CFR 60.3b1, FEMA 480 Publication, and the local flood reduction ordinance for the community.
What is the payout for Flood Insurance?
How flood insurance policies are paid out vary depending on the type of building covered. Building coverage on a primary residential home is paid on a replacement cost (RC) basis while on a rental and/or secondary residential home it is paid on an actual cash value (ACV) basis. Buildings considered commercial are also paid out on an ACV. Contents coverage, no matter what type of building, is always paid out on an ACV basis. The amount of coverage available on residential policies are no more than $250,000 for the dwelling and up to $100,000 for its contents. On commercial buildings, the coverage amount goes up to $500,000 for the building and $500,000 for its contents.
New Construction Information
The participating community will require an owner or builder to obtain a “Floodplain Permit” before construction begins. This permit is issued by the Community Planning office and requires property owners to build above the base flood elevation. Check with the local Community Planning office to determine your flood zone. If your building site is located in a Special Hazard Area, it is be wise to have a Licensed Land Surveyor, Professional Engineer, or Registered Architect come and set a temporary benchmark before construction begins. This will allow the builder to refer to the benchmark and build above the base flood elevation (BFE). Additionally, it will help you determine how much fill material is needed to raise your structure above the BFE which will result in lower Flood Insurance costs. Remember: building above the BFE results in lower Flood Insurance premiums; bu