Is Flood Insurance Required?
For starters, everyone is in a flood zone – either high, moderate or low risk. Does being in a moderate or low risk zone mean you won’t flood? Not exactly – 40%
of all flood claims are in moderate and low risk flood zones.
Here are just a few of the questions I’ve been asked over the span of my 25-year insurance career: Is flood insurance required by law? What is the minimum flood insurance required? What flood zones require flood insurance? Is flood insurance required for commercial property? How much flood insurance can I buy?
Whether or not flood insurance is required by law depends on what flood zone you are in and if you have a federally backed loan on your home or commercial building. If your property is in a Special Flood Hazard Area (SFHA) and has a federally backed loan, then you are required to have a flood insurance policy either from the National Flood Insurance Program (NFIP) or a qualifying private flood insurance policy through a company like Aon Edge. This is the same for both commercial and residential properties. Flood Zones that start with a letter “A” or “V” are considered SPHAs.
But how much flood insurance is required by a lender? Great question! NFIP guidelines state you must have at least equal to the lesser of the outstanding principal balance of the loan, the Replacement Cost Value of the home (RCV) or the maximum NFIP limit of $250,000. While a bank could require coverages equal to the home loan balance, often lenders will require a homeowner to insure to RCV up to the maximum NFIP limit of $250,000 for the structure. Thus, even if your home would cost $400,000 to replace, the maximum a lender may require is $250,000 because that is the NFIP limit. Contents coverage is not required for home loans but may be purchased. With the NFIP, contents coverage is limited to $100,000 for residences. On a commercial flood policy, the NFIP limit is $500,000 for structures and $500,000 for contents including inventory, merchandise, and machinery which may be mandatory per lender requirements.
With soaring costs to build or repair a house or commercial property these days, those limits may seem low. They are. These are the minimum requirements similar to the minimum liability requirements on an auto policy. Many agents recommend higher liability limits to properly protect their insureds in case of a serious auto accident - the same goes for flood insurance. EZ Flood and Excess Flood Insurance through Aon Edge can offer insurance coverages together up to $6.25 million for qualifying residences, and Commercial Flood Insurance through Insurmark can offer qualifying properties limits in excess of $1,000,000.
Help protect you and your clients’ property in the event of a flood.
This article is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.