Flood insurance
Also known as: national flood insurance program, nfip coverage
Flood insurance is a separate policy covering damage from rising water, which standard homeowners and commercial property policies exclude. Most U.S. coverage is written through the federal National Flood Insurance Program, with private excess policies available above its limits.
Standard property policies exclude flood, so a separate policy is required. The National Flood Insurance Program (NFIP), administered by FEMA, defines a flood as a general and temporary condition of partial or complete inundation of normally dry land, affecting two or more acres or two or more properties. Water damage from a burst pipe or wind-driven rain through a damaged roof is a property policy loss, not a flood loss.
Coverage is available only in participating communities — municipalities that have adopted floodplain management rules. Policies may be purchased directly from the NFIP or through a private insurer under the Write Your Own program, in which the carrier issues and services the policy while the federal program bears the risk. Building coverage and contents coverage are purchased separately, each subject to its own statutory maximum, with higher caps for non-residential property. Homeowners who need more can buy excess flood coverage from the private market.
Two features are heavily tested. A 30-day waiting period normally applies before coverage takes effect, which prevents buying a policy as a storm approaches; a purchase made in connection with a federally backed mortgage is the main exception. Contents are typically settled on an actual cash value basis, while a single-family primary residence insured to a sufficient percentage of replacement cost can be settled at replacement cost. Basement coverage is sharply limited, and land, currency, and most outdoor property are excluded.
Flood insurance appears on the property, personal lines, and property and casualty licensing exams, usually in the sections on limited and specialized policies and on sources of insurance. Expect questions on the flood definition, the waiting period, the separation of building and contents limits, and why flood is excluded from a homeowners or commercial package policy.
Key takeaways
- Standard homeowners and commercial property policies exclude flood, so a separate flood policy is needed.
- The NFIP defines a flood as inundation of normally dry land affecting two or more acres or two or more properties.
- Coverage is sold only in participating communities, directly from the NFIP or through Write Your Own insurers.
- Building and contents coverage are purchased separately, each with its own maximum limit.
- A 30-day waiting period generally applies, with a purchase tied to a federally backed mortgage as the main exception.