Insurance of all kinds, but especially flood insurance is a real issue for home buyers in Florida. We are a peninsula surrounded by water. Everyone who lives in Florida is in a flood zone. But not all flood zones are created equal. Join us below for an in depth Q&A session with Ms. Jennifer Dittman, agency owner of Brightway insurance as she answers our top questions about today’s flood insurance market.
Q: What is considered a flood?
A: A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder’s property) from:
- Overflow of inland or tidal waters; or
- Unusual and rapid accumulation or runoff of surface waters from any source.
Q: Is storm surge considered a flood for insurance?
A: You might be forgiven for thinking that storm surge is itself an insurable event. The reality though, is that storm surge is just another name for flooding, and nearly every homeowner’s policy excludes flood damage from coverage.
Q: What is the Consequence of NOT Having Flood Insurance- only Homeowner’s?
A: Any flood damage would not be covered unless you had separate flood policy.
Q: How Do I Know What Flood Zone My Home Is In?
A: The best place to start is with the FEMA Floodmap service center. Here is the link: https://msc.fema.gov/portal/home
Q: What are the Florida Flood Zone Codes and What Do They Mean?
A: Notes:
- These definitions are FEMA Flood Zones, NOT Hurricane Evacuation Zones. (Information about Florida Hurricane Evacuation Zones can be found at the Florida Division of Emergency website.)
- Your professional real estate agent should be able to tell you which flood zone a property is in but it is your insurance agent who will use a Flood Insurance Rate Map or FIRM, to ultimately determine your flood risk. Federal law requires you to purchase flood insurance if you have a federally backed mortgage and reside in a high-risk area.
Moderate to Low Risk Areas (Flood insurance is not required, but recommended) Zones B, C, and X These are flood zones with a less than 1% chance of flooding each year.
High Risk Areas (Flood Insurance is Mandatory)
Zones A, AE, A1-A30, AH, AO: These areas have a 1% chance of annual flooding and a 26% chance of flooding over 30 years.
Zone AR: This is a flood zone with an increased temporary risk due to the construction or restoration of a levee or a dam.
Zone A99: Areas with a 1% chance of annual flooding that will be protected by a levee or dam where construction has reached specified legal requirements.
High Risk – Coastal Areas (Flood Insurance is Mandatory)
Zone V, VE, V1-V30: Coastal Areas with a 1% or greater chance of flooding annually and subject to the additional hazard of storm waves. Also has a 26% chance of flooding over 30 years.
Undetermined Risk Areas
Zone D Possible but undetermined flood hazards
Q: Are insurance companies more concerned with rain flooding or coastal storm flooding?
A: Heavy rains may cause water damage without causing flood damage. If your home’s roof is damaged during a storm and rainwater leaks into the house, it is usually considered water, not flood damage. The key difference is the event that caused the damage.
Q: How Is Flood Insurance Underwritten in Florida?
A: There are two different entities that write flood insurance:
Government:
National Flood Insurance Program- The NFIP is a federal government program administered by the Federal Emergency Management Agency (FEMA). The National Flood Insurance Program (NFIP) has been the main source of flood insurance policies since the program began in 1968. There is little room for customization of NFIP coverages and there are no competitive rate options, as the structure is set by the government. Within the last few years, a new player has emerged in the Flood Insurance game – private flood insurers. (For more information about NFIP insurance see Page 6 and 7).
Private Carriers:
Private flood insurance, on the other hand, is written by private insurance carriers who are free to offer as much coverage as they want. Carriers may also include additional coverages, such as additional living expenses, which are not offered by the NFIP. When it comes to flood insurance, consumers now have more options than before. While the NFIP is a program funded and backed by the federal government, private flood carriers are independent sectors. These insurers have their own reinsurance programs and do not have to abide by the requirements set by FEMA for policies written through the NFIP. Private insurance companies generate a premium that more accurately reflects the flooding risk unique to each property. This rating structure allows consumers to shop their flood insurance to find the best rate.
Q: What Are Coverage Differences between Government and Private Insurance Carriers?
A: When it comes to comparing the two types of flood policies available, the most notable differences are the coverage options. Through the NFIP the maximum building coverage provided is $250,000. If the replacement cost for your property is more than that amount, you would need to purchase an excess coverage policy to have full coverage. Private flood carriers can provide up to $1 million in building coverage, with some offering even higher limits.
Private flood companies also offer many additional coverages that FEMA policyholders do not have access to. For replacement cost, this valuable coverage is only available for primary residences under the NFIP. All other property types as well as contents are covered at actual cash value. However, private flood carriers give the option to add replacement cost coverage for contents and secondary residences. Other optional coverages available only through private flood are:
- Additional living expenses
- Pool repair and fill
- Business income coverage
- Enhanced coverage for detached structures
Waiting Periods
The second major difference between FEMA flood insurance and private flood is the waiting period for your policy to go into effect. Through the NFIP there is a mandatory 30-day waiting period from the date of payment to the date your coverage begins. An exception is made for loan closing requirements. The maximum waiting period under a private flood policy is only 15 days, with some companies allowing coverage to go into effect immediately.
Other Considerations
Flood insurance is an investment you are making towards protecting your property, so it’s important to be completely informed when making this decision. The NFIP is required to be reauthorized by the government every so often. Most recently, the program was extended through February 2, 2024. If the NFIP were to expire, no policies through the program could be written or renewed.
Since private flood carriers do not have to follow FEMA regulations, their rates can fluctuate often. However, since there are multiple carriers you always have the option to shop your flood coverage with other companies should your renewal increase. Private flood policies also do not have surcharges that are added on for those insured under the NFIP.
Q: What is FEMA’s 50% rule?
A: FEMA’s 50% rule prohibits repairs and improvements on damaged homes exceeding 50% of their market value unless the entire residential structure is brought up to the most current floodplain management regulations.
NOTE: ** This is an ever-increasing issue in all Florida coastal areas. Each city has their own formula for establishing the “value” of the home. It is critical to have a knowledgeable Real Estate professional to assist you in buying a coastal property to avoid the serious pitfalls of the 50% Rule.**
Q: Do I need an Elevation Certificate for Flood Insurance?
A: Under the new, Risk Rating 2.0 insurance methodology, FEMA is not directly requiring the use of Elevation Certificates. FEMA has developed a flood insurance rating engine that pulls in a variety of flood risk and elevation datasets to provide insurance quotes. Within these datasets, elevation information is extracted and used to develop the insurance quote. The insured may provide an Elevation Certificate to override the FEMA developed elevation information if the Elevation Certificate results in a better rate for the insured. It is recommended to discuss the various options, including private flood insurance, with your insurance agent.
Q: Can You Bundle a Flood Policy with a Homeowners Policy?
A: There are a few companies that will offer flood insurance bundled with your home insurance but they usually won’t offer flood insurance in high risk areas.
Q: What policy (dollar) amounts do you recommend for Homeowners Policies?
A: It is important to note that Insurance companies do not insure the mortgage amount. Insurance companies require homes to be insured for 100% replacement cost. In the insurance industry companies have replacement cost estimators to determine to the best of our ability what it would cost to rebuild the home. Replacement cost of a home does not include the land or market value. For example, if you had a 1200 square foot home located on the beach with a market value of $1,500,000,00 versus that same 1200 square foot home located inland with the market value of $350,000 the cost to rebuild that home be approximately the same.
CONDO FLOOD INSURANCE
Q: Is it true that there is a limit on H06 policies of Approximately $225,000?
A: An H06 policy is condominium insurance that can cover liability claims, damage to your condo unit and belongings, and additional living expenses if you’re unable to stay in your residence due to a covered incident. An HO6 policy excludes flood coverage the same as a HO3 policy does.
Q: What items are covered under the RCBAP (Residential Condominium Building Association Policy)?
A: The RCBAP is a master flood insurance policy issued by FEMA for residential condominiums. To meet the definition of a residential condominium building and be eligible for coverage under an RCBAP, 75% or more of the building’s floor area must be for residential use. The RCBAP policy extends coverage to Building, Common areas and the Unit, including drywall, cabinets, ceilings, fixtures, appliances and flooring. This differs from the way a typical hazard, or homeowner’s policy covers the condominium building. For hazard policies, a policy usually covers the structure and common areas, and may or may not extend to the unit, depending on what the condominium Master Deed says. This is an important difference to understand when determining the amount of flood insurance that should be carried.
Q: How much coverage is available via RCBAP?
A: The RCBAP allows a condominium association to purchase coverage for the up to $250,000 per unit not exceeding the replacement cost. A 2-unit condo can purchase a policy with up to a $500,000 building limit, a 10-unit condo can purchase up to $2,500,000, etc. Check with your prospective building for their coverage amounts.
Q: What if this limit is not sufficient to replace everything covered by the policy?
A: An excess flood insurance policy can be purchased to add more coverage. Also consider a private market flood insurance policy. These policies have coverage similar to the FEMA flood policy but many times will insure up to the full replacement cost of the building.
Q: What is Replacement Cost Value (RCV)?
A: The RCBAP covers the insured property for replacement cost value (RCV). The RCV is not the same as market value. Replacement cost is the current cost to repair or replace the insured property with similar quality materials. The RCBAP requires that a policy insure to value and must cover at least 80% of the RCV or the maximum available under the FEMA policy. If not properly insured to value at the time of a loss, a co-insurance penalty will be applied, and the insured will not be reimbursed fully for a loss.
Q: Do I Need a Unit Policy as Well?
A: A unit owner can purchase an individual flood policy that will cover personal contents in the unit, including clothes, TV, furniture and basically anything that isn’t nailed down. Think of turning your unit upside-down. Whatever falls out is contents. Please note a unit-owner’s HO6 homeowners policy does not cover flood damage, so an individual flood unit policy should be an important part of your insurance plan.
ASSUMING AN NFIP FLOOD POLICY
Did you know that National Flood Insurance Program (NFIP) policies can be transferred from one property owner to the next? If you are selling your home let the buyer know that you have an existing NFIP policy that can be transferred to them. This process is called “policy assumption” and can make the homebuying process easier for both the buyer and seller.
Benefits of Policy Assumption
If your home is in a high-risk flood zone it can be difficult to sell your property in a timely manner due to flood insurance requirements. With policy assumption the buyer does not have to go through the hassle of meeting underwriting requirements to purchase a flood insurance policy for the home, which can help your property sell faster.
Another major benefit of this process is that it can be more cost-effective for the buyer. Policy assumption allows the homebuyer to avoid the extra cost of an elevation certificate, which are typically required for properties in high-risk flood zones. Additionally, if you are buying a home that has been recently moved, or will soon be moved, into a high-risk flood zone, you can assume the existing policy on the home and keep the rates for the lower-risk flood zone. This can save you hundreds, if not thousands, of dollars on your required flood insurance.
Premiums for NFIP policies are paid annually, so by assuming an existing policy you do not have to worry about paying a flood insurance premium until the renewal date. This can help reduce your closing costs.
What’s the Catch?
The only slight downfall to a policy transfer may fall on the seller. As mentioned previously, premiums for NFIP policies are paid in full for an entire year. Typically the only time a refund is when a property is sold. By doing a policy transfer the seller is not given a refund from the carrier because the policy technically remains in effect. However, this is something that may be worked out separately amongst both parties, especially if the buyer is receiving a benefit by assuming the policy – such as locking in a lower rate than they would receive on a brand new policy.
Policy Changes
Instead of choosing your own coverage limits and deductible as you would with a brand new policy, you are adopting a policy that has already been written. This does not mean that you have to keep these coverage options though. Once the new policyholder takes over, endorsements can be made per the guidelines of the NFIP. Coverage can be increased during the policy period, but it cannot be decreased until at the time of renewal.
However, occupancy changes must be made at the time of policy assumption. For example, if the property is currently owner-occupied and the new buyer is going to use it as a rental property, this change must be at the time of policy transfer. Any additional premium that might be due is taken care of at closing.
How To do a Policy Assumption
The process is fairly simple, there are required forms that you will need to fill out in order to transfer your policy to a new owner. The forms will need to be reviewed by the current flood insurance carrier for approval. If you have any questions about policy assumptions or are selling a home and would like to transfer your existing policy to the buyer, contact our team of flood experts to help you.
About Sand Key Realty:
As the largest and longest running independent real estate brokerage in Pinellas County, we’ve been serving clients in the area since 1974. We specialize in luxury real estate and beachfront properties. We don’t answer to a corporation in another state….we answer to our clients. Whether you’re looking for a primary residence, vacation home, or investment property, our seasoned team of agents will help you make informed decisions through professional guidance and client-focused, five-star service. Call us at 727.443.0032 or send us an email.
About Jennifer Dittman and Brightwater Agency:
The Brightway agency is proud that their agents live in the communities that they serve. Providing local expertise and the power of choice is the Brightway difference.
Jennifer and her husband of 30 years have owned a number of businesses including DJ’s ceramics, and Craft Supply, Dittman Insurance Group and Dittman Delivery. A graduate of Clearwater High School, she and her husband Doug have two children, two grandchildren and two dogs. They love spending time at the beach, camping and creating art in clay and glass.
Call Jennifer at 727.493.0918 or send an email.