Video 19

Presentation Summary

I. The Flood Disaster Protection Act of 1973 mandates that federally regulat-ed, supervised, or insured financial institutions and federal agency lenders require borrowers to purchase flood insurance for buildings located in the Special Flood Hazard Area (SFHA) of a community participating in the Na-tional Flood Insurance Program (NFIP). A. It is the lender’s responsibility to use the current effective Flood Insurance Rate Map (FIRM) to determine whether a building is in the SFHA. 1. Some financial institutions require flood insurance for properties located outside the SFHA. 2. Over 20 percent of NFIP claims come from losses to properties located outside the SFHA.

II. Flood insurance can be purchased to protect buildings, and the contents of insurable buildings. A. Buildings are defined as a structure that is principally above ground and affixed to a permanent site. 1. Fifty-one percent of the building’s value must be above ground. 2. It must also have two or more outside rigid walls and a fully affixed roof. B. Building coverage includes: 1. The insured building and its foundation elements; 2. The electrical and plumbing systems; 3. Utility equipment, such as furnaces, water heaters and central air conditioning equipment; 4. Large appliances such as refrigerators and cooking stoves, and built-in appliances such as dishwashers; 5. Permanently installed carpeting over unfinished flooring; 6. Up to 10 percent of the coverage amount of a standard dwelling policy can be applied to detached garages. i. This does not apply to garages used for business or farming purposes, or as residences.

Notes

Flood Insurance: Is Purchase Required?What Can Be Insured?

C. Contents are defined as personal belongings located within an insurable building. D. Contents coverage includes: 1. Clothing, furniture, and electronic equipment; 2. Curtains; 3. Portable and window air conditioners; 4. Portable microwaves and dishwashers; 5. Carpeting that is not already included in property coverage; 6. Clothing washers and dryers. 7. Business owners may purchase contents coverage for machinery, equipment, stock, and other property used in their business. E. Coverage can be purchased for contents only, even if the insurable building itself is uninsured.

III. Flood insurance cannot be purchased for land, property or belongings outside of a building. Items not covered include: A. Trees and plants; B. Driveways and sidewalks; C. Wells, septic systems and decks; D. Patios and fences; E. Hot tubs and swimming pools; F. Cars, motorcycles and other self-propelled vehicles; G. Animals and livestock; H. Currency, precious metals, and valuable papers such as stock certificates; I. Living expenses such as temporary housing; J. Damages caused by moisture, mildew, or mold that could have been avoided by the property owner; K. Financial losses caused by business interruption or loss of use of insured property.

IV. Coverage for basements is limited to specific items, including: A. Foundation elements; B. Essential building equipment such as the furnace, hot water heaters, water softeners, central air conditioners, and heat pumps; C. Electrical wiring and circuit breaker boxes; D. Fiberglass insulation and unfinished drywall and sheetrock. E. Check Standard Flood Insurance Policy for detailed list of included items.

NotesPresentation Summary (cont.)

V. Coverage for enclosures used to elevate the lowest floor of thestructure above the Base Flood Elevation (BFE) is also limited to specific items, including: A. Foundation elements; B. Essential building equipment such as the furnace, hot water heater, water softener, central air conditioner, and heat pump; C. Electrical wiring and circuit breaker boxes. D. Check Standard Flood Insurance Policy for detailed list of included items.

VI. Coverage amounts vary depending on the requirements of the lender. A. If flood insurance is required by a lender as a result of the mandatory purchase requirement, then the minimum coverage amount is the lesser of: 1. the outstanding principal balance of the loan; 2. the total insurable value of the property; or 3. the maximum coverage limits available under the NFIP. 4. The lender has the discretion of requiring more than the minimumamount of coverage required by the mandatory purchase requirement. B. No minimum coverage amount is required if flood insurance is being purchased voluntarily. C. Maximum coverage for buildings is $250,000 per unit for residential buildings and $500,000 for non-residential buildings. D. Maximum coverage for contents is $100,000 per unit for the contents of a residential building, and $500,000 for the contents of a non-residential building. E. These minimums and maximums are current as of 2013.

VII. The value of flood damage losses to structures is calculated based on either Replacement Cost Value (RCV) or Actual Cash Value (ACV). A. RCV is the actual cost to replace or restore that portion of the property that was damaged. 1. To qualify for RCV the structure must be a single family dwelling (includes townhomes and condominiums), the policy holder’s principal residence, and must be insured at the time of the loss for at least 80 percent of the building’s replacement cost or the maximum coverage available. B. All other losses are calculated based on ACV, which is the replacement cost value at the time of loss minus the value of its physical depreciation. 1. Some building items that experience rapid depreciation are always reimbursed on an ACV basis, even if the building itself otherwise qualifies for RCV.

VIII. ACV applies to contents coverage.

NotesPresentation Summary (cont.)

Key Terms Used in This Presentation

Actual Cash Value (ACV)The cost to replace an insured item of property at the time of loss, less the value of physical depreciation. BasementAny area of the building having its floor subgrade (below ground level) on all sides.

BuildingA structure that is principally above ground and enclosed by walls and a roof. The term includesmanufactured mobile homes, prefabricated buildings, gas or liquid storage tanks, and recreational or travel vehicles installed on a site for more than 180 consecutive days.

EnclosureEnclosures are enclosed, walled-in areas below the lowest floor of an elevated building. Enclosures below the base flood elevation may only be used for building access, vehicle parking, and storage. Enclosed areas below the lowest floor must be adequately anchored, built using flood resistant building material, and any utilities or service facilites must be designed and/or located to prevent flood damage. Flood insurance coverage for enclosures below the base flood elevation is very limited.

Flood Disaster Protection Act of 1973The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for the protection of property located in Special Flood Hazard Areas.

Flood Insurance Rate Map (FIRM)The map provided to communities in the regular phase of the NFIP. It delineates a Special Flood Hazard Area (SFHA) or floodplain in which regulations apply. FIRMs often include base flood elevations and floodways.

National Flood Insurance Program (NFIP)A national program administered under the Flood Insurance and Mitigation Administration (FIMA), acomponent of the Federal Emergency Management Agency (FEMA). The NFIP program has three components: flood insurance, floodplain management, and flood hazard mapping.

National Flood Insurance Reform Act of 1994The National Flood Insurance Reform Act of 1994 established penalties for mortgage lenders that do notcomply with the Flood Disaster Protection Act of 1973’s mandatory flood purchase requirement.

Replacement Cost Value (RCV)Replacement Cost Value is the actual cost to replace or restore that portion of the property that was damaged. To be eligible for replacement cost coverage, the structure must be a single family dwelling, the policy holder’s principal residence, and must be insured at the time of the loss for at least 80 percent of the building’sreplacement cost or the maximum coverage available, whichever is less. Replacement cost value is alsoavailable for residential condominium buildings.

Key Terms Used in This Presentation (cont.)

Special Flood Hazard Area (SFHA)The land area covered by the flood waters of a base flood. The SFHA is the area where the NFIP’s floodplain regulations must be enforced.

Iowa State University Extension and Outreach programs are available to all without regard to race, color, age, religion, national origin, sexual orientation, gender identity, genetic information, sex, marital status, disability, or status as a U.S. veteran. Inquiries can be directed to the Director of Equal Opportunity and Compliance, 3280 Beardshear Hall, (515) 294-7612.

Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State Universi-ty of Science and Technology, Ames, Iowa.

Questions

1. Financial institutions cannot require the purchase of flood insurance for properties located outside the Special Flood Hazard Area. a. True b. False

2. Which of these is not covered under building coverage? a. The electrical and plumbing system. b. Utility equipment, such as furnaces, water heaters and central air conditioning equipment. c. Clothing washers and dryers. d. Large appliances such as refrigerators and cooking stoves, and built-in appliances such as dishwashers.

3. Which case would exceed maximum coverage limits? a. $230,000 in coverage for a residential building b. $450,000 in coverage for a non-residential building c. $150,000 in coverage for the contents of a residential building d. $475,000 in coverage for the contents of a non-residential building

4. ______ is the replacement cost value at the time of loss minus the value of its physical depreciation, and applies to ______. a. Actual Cash Value : all buildings used as single family dwellings. b. Actual Cash Value : contents of insurable buildings. c. Actual Cash Value : some building items that experience rapid depreciation. d. Replacement Cost Value : large appliances such as ranges and refrigerators. e. B and C.

Answer Key: 1:b, 2:c, 3:c, 4:e

Supporting Materials From This Presentation

A building is eligible to be insured under the NFIP if the structure is principally above ground and affixed to a permanent site. At least 51% of the value of the structure must be above

ground, and the structure must also have two or more outside rigid walls.

The NFIP defines a basement (right) as any enclosed area of a building which has a floor that is below ground level on all four sides. What is typically referred to as a “walkout basement”

(left) is not considered to be a basement as defined by the NFIP.

Supporting Materials From This Presentation

To view the NFIP Standard Flood Insurance Policy, go to: http://www.fema.gov/national-flood-insurance-program/standard-flood-insurance-policy-forms