National Flood Insurance Program Flashcards
NFIP
created by the federal government to fill the gap left by the private insurance industry, and is administered by the Federal Insurance and Mitigation Administration (FIMA), a part of the Federal Emergency Management Agency (FEMA).
Refer to NFIP for more information
Write Your Own” vs. Government
National Flood Insurance is sold and serviced directly through the NFIP or through a write your own (WYO) insurance program. The private insurers that participate in a WYO program write and service policies on a no risk-bearing basis through a special arrangement with the Federal Insurance Administration (FIA). They retain part of the flood insurance premium to pay for commissions and administrative costs. The remaining premiums, plus investment, are used to cover losses. If the premium is insufficient to cover losses, the insurers will be reimbursed for the excess costs by the NFIP. Coverage purchased through the NFIP and through the WYO insurance plan is identical. Any licensed property and casualty producer may place business with the NFIP.
NFIP flood insurance has a policy term of 1 year. All policies expire at 12:01 a.m. on the last day of the effective term, but the insureds remain covered for 30 days after the expiration.
Eligibility
To be eligible for the flood program an insured must live in a community that has met the minimum floodplain management guidelines. An eligible structure must have 2 solid walls and a roof, be principally above ground, and not entirely over water.
FIMA may deny coverage through a provision in the 1968 Act for any property that is in violation of state or local laws, regulations or ordinances.
Certain restrictions also apply to properties located within areas defined by the federal government as part of the Coastal Barrier Resource System or as an Otherwise Protected Area.
Upon purchase of a flood policy, a 30-day waiting period is in place beginning from the time of application and premium payment. This waiting period can be waived in certain circumstances surrounding new or revised loans, map revisions or if a loan exists on a property that should have obtained flood insurance but did not.
Flood Definition
The key to triggering a flood policy is for the damage to be caused by a flood, as defined by the NFIP. Water damage that does not meet this definition is not considered a flood.
As defined by the NFIP, a flood is a general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area, or of 2 or more properties (at least one of which is the insured’s property).
Floods may be caused by:
Overflow of inland or tidal waters;
Unusual and rapid accumulation or runoff of surface waters from any source;
Mudflow (a river of liquid and flowing mud on surfaces of normally dry land) and collapse; or
Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.
The following losses do not meet the definition of flood or are excluded from coverage: landslides, backup of sewers unrelated to a flood, windblown rain, snow, or sleet. Flooding that is within the insured’s control will not be covered.
Coverage and Limits
Building: Contents:
Single Family
$250,000
$100,000
Other Residential
$250,000
$100,000
Small Business
$500,000
$500,000
Other Nonresidential
$500,000
$500,000
Federal Emergency Flood
goes into effect when a community applies for the program and ends when all NFIP criteria have been met and the regular program can begin. It provides a limited amount of coverage with subsidized rates. Limits are as follows:
Building: Contents:
Single Family
$35,000
$10,000
Other Residential
$100,000
$100,000
Small Business
$100,000
$100,000
Other Nonresidential
$100,000
$100,000
Deductibles
Single-family dwellings are automatically provided with replacement cost coverage if insured to at least 80% of the replacement value, or the maximum allowed under the regular flood insurance program. All other buildings and all contents are insured on an actual cash value basis. Standard deductible amounts apply separately to building and contents losses, with higher deductibles available. Many of the exclusions found in homeowners or dwelling policies for certain types of property, such as accounts, bills, lawns, trees, aircraft, motor vehicles, fences, retaining walls, etc., are also excluded from the flood insurance policy. In addition, other property that is particularly prone to flood damage also is excluded. These include underground structures and equipment, newly constructed buildings in, on, or over water, and structures that are primarily considered containers.
There is a 30-day waiting period after the application has been accepted before coverage is effective except in the following conditions:
During the first 30 days after a community enters the emergency or normal programs, then coverage begins at 12:01 a.m. the day after application and premium payment have been mailed;
When an existing policy is assigned to a property purchaser; and
At 12:01 a.m. on the 5th day after an endorsement request and premium have been mailed for an existing policy.
No binders are issued during the waiting period.
