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Who may
purchase a flood insurance policy?
How can property owners or renters find out if they are
eligible to purchase flood insurance?
How can a property owner determine if the property is in a
Special Flood Hazard Area (SFHA)?
What types of property may be insured against flood loss?
What kinds of property are not insurable under the NFIP?
Are there certain buildings that cannot be covered?
How are
flood insurance premiums calculated?
Is the
purchase of flood insurance mandatory?
Why is my lender requiring the purchase of flood insurance?
Are lenders required to escrow flood insurance payments?
How many buildings or locations (and their contents) may be
insured on each policy?
What is the
flood insurance policy term?
Is there a minimum premium for a flood insurance policy?
Is there a waiting period for flood insurance to become
effective?
Can flood insurance be cancelled at the request of the insured
with a refund of premium?
Is there a "grace period" for an insured under the NFIP policy
conditions?
Who may
purchase a flood insurance policy?
NFIP coverage is available to all owners of insurable property
(a building and/or its contents) in a community participating
in the NFIP. Owners and renters may insure their personal
property against flood loss. Builders of buildings in the
course of construction, condominium associations, and owners
of residential condominium units in participating communities
all may purchase flood insurance.
Condominium associations may purchase insurance coverage on a
residential building, including all units, and its commonly
owned contents under the Residential Condominium Building
Association Policy (RCBAP). The unit owner may separately
insure personal contents as well as obtain additional building
coverage under the Dwelling Form as long as the unit owner's
share of the RCBAP and his/her added coverage do not exceed
the statutory limits for a single-family dwelling. The owner
of a non-residential condominium unit may purchase only
contents coverage for that unit.
How can property owners or renters find out if they are
eligible to purchase flood insurance?
NFIP coverage is available only in participating communities.
Almost all of the nation's communities with serious flooding
potential have joined the NFIP. The NFIP provides a listing of
participating communities to the professionals here at API
Group and we can provide you with the proper information
How can a property owner determine if the property is in a
Special Flood Hazard Area (SFHA)?
FEMA publishes maps indicating a community's flood hazard
areas and the degree of risk in those areas. Flood insurance
maps usually are on file in a local repository in the
community, such as the planning and zoning or engineering
offices in the town hall or the county building. If you are
curious, as one of the professionals here at API Group.
What types of property may be
insured against flood loss?
Almost every type of walled and roofed building that is
principally above ground and not entirely over water may be
insured if it is in a participating community. In most cases,
this includes manufactured (i.e., mobile) homes that are
anchored to permanent foundations and travel trailers without
wheels that are anchored to permanent foundations and are
regulated under the community's floodplain management and
building ordinances or laws. (However, this does not include
converted buses or vans.) Contents of insurable walled and
roofed buildings also may be insured under separate coverage.
What
kinds of property are not insurable under the NFIP?
Buildings entirely over water or principally below ground, gas
and liquid storage tanks, animals, birds, fish, aircraft,
wharves, piers, bulkheads, growing crops, shrubbery, land,
livestock, roads, machinery or equipment in the open, and most
motor vehicles are not insurable. Most contents and finishing
materials located in a basement or in enclosures below the
lowest elevated floor of an elevated building constructed
after the FIRM became effective are not covered. (See
"Coverage" section for coverage limitations in basements and
below lowest elevated floors.) Information on the insurability
of any special property may be obtained by contacting a
property insurance agent or a broker.
Are there certain buildings that cannot be covered?
Flood insurance is not available for buildings that the
Administrator of FIA determines have been declared by a State
or local zoning authority or other authorized authority to be
in violation of State or local floodplain management
regulations or ordinances. No new policies can be written to
cover such buildings; nor can an existing policy be renewed.
New construction or substantially improved structures located
within a designated Coastal Barrier Resources System (CBRS)
area are not eligible for flood insurance, but existing
structures that predate CBRS designation are eligible for
flood insurance coverage. These areas are located in nearly
400 communities on the Atlantic and Gulf coasts and along the
Great Lakes shores, and are delineated on the communities'
flood maps. If, at the time of a loss, it is determined that a
post-CBRS-designation building is located in a CBRS area, the
claim will be denied, the policy canceled, and the premium
refunded.
How are
flood insurance premiums calculated?
A number of factors are considered in determining the premium
for flood insurance coverage. They include the amount of
coverage purchased; location; age of the building; building
occupancy; design of the building; and, for buildings in SFHAs,
elevation of the building in relation to the base flood
elevation. Buildings eligible for special low-cost coverage at
a pre-determined, reduced premium rate are single-family and
one- to four-family dwellings located in Zones B, C, and X.
For these exceptions, certain loss limitations exist. (See the
"Flood Hazard Assessment and Mapping Requirements" section for
definitions of flood zones.)
Is the
purchase of flood insurance mandatory?
The Flood Disaster Protection Act of 1973 and the
National Flood Insurance Reform Act of 1994 mandate the
purchase of flood insurance as a condition of Federal or
Federally related financial assistance for acquisition and/or
construction of buildings in SFHAs of any community. The
purchase of flood insurance on a voluntary basis is
frequently prudent even outside of SFHAs.
The Acts prohibit Federal agency lenders, such as the Small
Business Administration (SBA) and United States Department of
Agriculture's (USDA) Rural Housing Service, and
Government-Sponsored Enterprises for Housing (Freddie Mac and
Fannie Mae) from making, guaranteeing, or purchasing a loan
secured by improved real estate or mobile home(s) in an SFHA,
unless flood insurance has been purchased, and is maintained
during the term of the loan.
The Acts apply to lenders under the jurisdiction of Federal
entities for lending institutions. These Federal entities
include the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, the Comptroller of
the Currency, the Office of Thrift Supervision, the National
Credit Union Administration, and the Farm Credit
Administration. The Acts also require Freddie Mac and Fannie
Mae to implement procedures designed to ensure compliance with
the mandatory purchase requirements of the Acts.
The purchase of flood insurance does not apply to
conventional loans made by Federally regulated lenders
when the community in which the building is located is not
participating in the NFIP. Although Federal flood insurance is
not available for new construction or substantially improved
structures in CBRS areas, conventional loans may be made there
by Federally regulated lenders. In these cases, the lending
institution is required to notify the borrower that, in the
event of a flood-related Presidentially declared disaster,
Federal disaster assistance will not be available for the
permanent repair or restoration of the building. Federally
regulated or insured lending institutions are required in all
cases to notify the borrower when the building being used to
secure a loan is in an SFHA.
Why is my lender requiring the purchase of flood insurance?
For virtually every mortgage transaction involving a structure
in the United States, the lender reviews the current NFIP maps
for the community in which the property is located to
determine its location relative to the published SFHA and
completes the Standard Flood Hazard Determination Form (SFHDF).
If the lender determines that the structure is indeed located
within the SFHA and the community is participating in the NFIP,
the borrower is then notified that flood insurance will be
required as a condition of receiving the loan. A similar
review and notification is completed whenever a loan is sold
on the secondary loan market or perhaps when the lender
completes a routine review of its mortgage portfolio. This
fulfills the lender's obligation under the Flood Disaster
Protection Act of 1973 and the National Flood Insurance Reform
Act of 1994 that requires the purchase of flood insurance by
property owners who are being assisted by Federal programs or
by Federally regulated institutions in the acquisition or
improvement of land, or facilities, or structures located or
to be located within an SFHA.
Are lenders required to escrow flood insurance payments?
The statute requiring Federally regulated lenders, their
services, and Federal Agency lenders to escrow for flood
insurance became effective on October 1, 1996. If escrow for
taxes, insurance, and/or other reasons is already required,
escrow for flood insurance on loans secured by improved
residential real estate or mobile homes is also required.
Lenders who escrow will comply 100 percent with the statutory
requirement by maintaining flood insurance during the term or
life of the loan.
How many buildings or locations (and their contents) may be
insured on each policy?
Normally, only one building and its contents can be insured on
each policy. The Dwelling Form of the Standard Flood Insurance
Policy does provide coverage for up to 10 percent of policy
amount for appurtenant detached garages but not for carports,
tool and storage sheds, and the like. In addition, the
Scheduled Building Policy is available to cover 2 to 10
buildings. The policy requires a specific amount of insurance
to be designated for each building, and all buildings must
have the same ownership and the same location.
What is the
flood insurance policy term?
Flood insurance coverage is available only for a 1-year term.
Is there a minimum premium for a flood insurance policy?
There is a minimum premium for all flood insurance policies.
Because the minimum premium is subject to change, if you are
interested in purchasing a flood insurance policy should
contact one of our professionals to obtain the current minimum
premium amount.
Is there a waiting period for flood insurance to become
effective?
There is normally a 30-day waiting
period before flood insurance goes into effect.
There are two exceptions:
If the initial purchase of flood insurance is in connection
with the making, increasing, extending, or renewing of a loan,
there is no waiting period. The coverage becomes effective at
the time of the loan, provided the application and presentment
of premium are made at or prior to loan closing.
If the initial purchase of flood insurance is made during the
13-month period following the revision or update of a Flood
Insurance Rate Map for the community, there is a 1-day waiting
period.
In addition to the two basic exceptions, the FIA has issued a
policy decision specifying the following four exceptions:
1) The 30-day waiting period will not apply when there is an
existing insurance policy and an additional amount of flood
insurance is required in connection with the making,
increasing, extending, or renewing of a loan, such as a second
mortgage, home equity loan, or refinancing. The increased
amount of flood coverage will be effective as of the time of
the loan closing, provided the increased amount of coverage is
applied for and the presentment of additional premium is made
at or prior to the loan closing.
2)The 30-day waiting period will not apply when an additional
amount of insurance is required as a result of a map revision.
The increased amount of coverage will be effective at 12:01
a.m. on the first calendar day after the date the increased
amount of coverage is applied for and the presentment of
additional premium is made.
3)The 30-day waiting period will not apply when flood
insurance is required as a result of a lender's determining a
loan that does not have flood insurance coverage should be
protected by flood insurance. The coverage will be effective
upon the completion of an application and the presentment of
payment of premium.
4) The 30-day waiting period will not apply when an additional
amount of insurance offered in the renewal bill is being
obtained in connection with the renewal of a policy.
Can flood insurance be cancelled at the request of the insured
with a refund of premium?
Flood insurance can be canceled, and a refund can be issued,
only in certain circumstances, because all of the
premium is fully earned on
the first day of the policy term. Premium will be refunded on
a pro-rata basis when the policyholder no longer owns or has
an insurable interest in the insured property, provided no
claim has been paid or is pending. There are other limited
cancellation provisions for the refunding of premium. To
discuss cancellation criteria and procedures, you should
contact one of the professionals here at Lakewood Financial.
Is there a "grace period" for an insured under the NFIP policy
conditions?
All policies expire at 12:01 a.m. on the last day of the
effective term. (For the ease and convenience of insurance
agents and brokers, lenders, and policyholders, NFIP rules
allow for "renewal" of expiring policies and no new
application is required.) Coverage remains in force for 30
days after the expiration of the policy, and claims for losses
that occur in the period will be honored providing the full
renewal premium is received by the end of the 30-day period.
Coverage also remains in force for any mortgagee named in the
policy for 30 days after written notice to the mortgagee of
the expiration of a policy.
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