The standard homeowners insurance policy in the United States does not cover damages from flooding caused by rains, hurricanes, and storms that are common in many parts of the country. Flooding can cause property damages worth hundreds and thousands of dollars, so every American homeowner should know about the National Flood Insurance Program (NFIP). The NFIP is a federally insured program that seeks to make flood insurance affordable for all.
1. What is the NFIP?
The NFIP was created by the Congress to lessen flooding damage by enforcing building and zoning regulations in communities in flood-prone regions. As part of this program, communities agree to implement comprehensive floodplain management plans based on governmental guidelines to reduce the risk of flooding in newly constructed buildings in high-risk or Special Flood Hazard Areas. In return, the Federal government makes available affordable insurance to homeowners in these regions.
The NFIP serves two purposes. It provides affordable insurance options to homeowners in flood-prone areas to help reduce their dependence on insurers who charge exorbitant premium rates. On the other hand, the program is also an effective method to stem losses from floods, and reduce the cost of providing loan-based disaster assistance to flood-affected homeowners.
2. Who is Eligible for NFIP Protection?
A homeowner is eligible for NFIP protection if his community participates in this program. The National Flood Insurance Program Community Status Book page on the FEMA (Federal Emergency Management Agency) website contains information on the communities that take part in the NFIP.
Protection under the NFIP is available to homeowners who live in their residences or have rented out their premises, condo owners and renters, and condominium associations. To be eligible for protection under the NFIP, a homeowner must ensure that his house has at least two rigid exterior walls and a secured roof that is fixed to a permanent spot. The structure must be stable and should resist flotation and lateral movement. Owners of manufactured homes that are securely fixed to permanent foundations are also eligible for flood insurance protection under the NFIP. The NFIP also offers flood insurance coverage for contents to tenants.
The premium depends on the insured value, the amount of deductible, the flood risk of the property, and the extent of coverage.
3. How Can You Calculate Flood Risk in a Region?
The flood insurance rates of properties are determined on the basis of flood risk. The rates are different for properties located in high-risk and moderate-to-low risk areas. You may have to buy separate structure and contents insurance policies depending on your risk profile. You can find out the flood risk profile of your property with the One-Step Flood Risk Profile calculator on the official website of the NFIP.
Obtaining flood insurance is not compulsory. But flooding can cause damages worth hundreds of thousands of dollars. So people who own properties in low-risk flood areas should also buy minimal insurance coverage.
4. How Does Flood Risk Profile Affect Policy Rates?
Depending on the risk profile of your property, you are eligible for either the Preferred Risk Policy or the Standard-Rated Policy. Homeowners with properties in moderate-to-low risk flood areas are eligible for the Preferred Risk Policy that has the lowest premium available under the NFIP. What is more, both structure and contents coverage options are available at this low premium price. Homeowners with properties in high-risk flood zones are eligible only for the Standard-Rated Policy with separate structure and contents coverage options. Although buying flood insurance is usually optional, homeowners who live in high-risk flood areas and have obtained mortgages from a federally insured lender must have insurance cover.
The Homeowner Flood Insurance Affordability Act of 2014 has reduced the premium amounts on certain types of flood insurance policies. The new act has also repealed some rate increases put into effect by the Biggert-Waters Flood Insurance Reform Act of 2012, and policyholders who have already paid their dues will be issued refunds.
5. What Does the Federal Flood Insurance Policy Cover?
Residential flood insurance policies under the NFIP cover building and contents. However, no policy covers the land on which the structure stands.
The building coverage includes protection for the insured structure and its foundation, electricity and plumbing systems, HVAC installations, refrigerators, stoves, water heaters, in-built appliances like dishwashers, and permanent carpeting installed over unfinished floors. The contents coverage includes protection for electronic equipment, curtains, furniture, carpeting that is not protected by the building insurance plan, and electrical appliances like portable microwave ovens and dishwashers, portable and window air-conditioning units, and clothes washers and dryers.
Flood claims under the NFIP are reimbursed using two methods: Actual Cash Value (ACV) and Replacement Cost Value (RCV). RCV is the cost to replace a damaged or destroyed property. Owners of single-family units or those whose primary residences have been damaged by floods can claim RCV if they had insured the structures to within 80 percent of their rebuilding costs. Any other kind of building and the contents of the damaged property are reimbursed using the ACV method. ACV is calculated as the RCV at the time of the loss but without adjusting for physical depreciation. Homeowners who live in regions where the costs of building materials and labor are high can choose to be reimbursed at the RCV.
6. How Can You Apply for a Flood Insurance Policy Under the NFIP?
The NFIP has collaborated with private insurers to provide flood insurance protection to homeowners and renters. The FEMA website contains a list of all private insurance companies that sell NFIP polices and address claim issues. You can also find out about insurance agents in your locality who sell and service NFIP policies by filling out and submitting the Flood Risk Profile on the official NFIP website. Remember that the policy will come into effect after 30 days of buying it.
7. How Can You File Claims Under the NFIP?
A homeowner who owns a flood insurance policy under the NFIP should immediately report his loss to the insurer who had written his policy. A claims adjuster is then assigned to the policyholder. The policyholder must file a “proof of loss” within 60 days from the day of loss. The “proof of loss” is a sworn statement that lists the damages evaluated and claimed by the policyholder. The requisite form is available with the claims adjuster and must be submitted to the insurer. Some insurers may require the claimant to get the “proof of loss” document notarized. The claimant will be paid an amount equivalent to the insured value minus the deductible. He will never be paid more than the value of the covered loss.
Knowing about the homeowners flood insurance policies under the NFIP will help you choose the right insurance policy for your situation to protect your home and your precious possessions from flood damage. Armed with the above-mentioned pieces of information, you can also ensure that you pay a premium rate that reflects the real risk of flooding in your locality and the vulnerability of your home.