Understanding Flood Insurance

Trying to figure out flood insurance on your own can be frustrating. But we’re here to help.

In A Nutshell
  • Homeowners insurance is not the same as flood insurance

    Homeowners insurance does not cover flooding.

  • You may be required to have flood insurance

    Flood Insurance is required for some homeowners.

  • Buy now, save later

    If you buy flood insurance now, you could save yourself thousands of dollars over the next few years.

Coastal flooding is part of life in New York City.

What is it?

The National Flood Insurance Program is a federally-backed program that began in 1968. At the time, private companies were unwilling to take on the risk of damage caused by floods, so Congress created the NFIP to provide homeowners with affordable flood insurance. New York City opted into the program in 1983.

The NFIP is administered by the Federal Emergency Management Agency and by private insurance companies. While these companies sell flood insurance, all rates are standardized by FEMA. This means you don’t need to shop around for insurance, but you should check the accuracy of your rate – after all, brokers make mistakes.

What Does Flood Insurance Cover?

There are two kinds of coverage: building and contents. You have the option to select separate coverage amounts and deductibles for each.

  • Building coverage

    Insures the structure only, not the contents or the landscaping. It does not cover finishing in the basement.

  • Contents coverage

    Insures your belongings (but most items in your basement or below your lowest living floor are excluded).

How are the rates determined?

Flood insurance rates vary depending on your property’s flood zone, its height above sea level, and your building’s characteristics. In New York City, there are three different flood zones that determine these rates:

VE

Highest risk

AE

High risk

X

Moderate risk

About the zones

In low to moderate risk areas (an X zone or no zone), there are two types of policies available: a Standard Rated Policy or the Preferred Risk Policy.

The Standard Rated Policy is the standard rate for homeowners in low to moderate risk zones. The Preferred Risk Policy is a special policy that offers the lowest flood insurance premium in certain circumstances.

In the high risk flood zones (AE and VE), homeowners are required to buy flood insurance if they have a federally backed mortgage. Also, homeowners who have received federal disaster assistance for flood damage are required to buy flood insurance in order to be eligible for future assistance.

Subsidized Rate vs. Full Risk Rate

In high risk flood zones, there are two different types of insurance rates available: the pre-FIRM subsidized rate, and the standard rate. The pre-FIRM subsidized rate is only available for homeowners whose properties were built before November 16, 1983 (“pre- FIRM” because the home was built before the FIRM was adopted in 1983). This subsidized rate may be lower than the standard rate; however, because the subsidies are decreasing, there are many properties where the standard rate is actually less expensive.

How Is The Risk Calculated?

The standard rate is calculated based on the difference between your home’s elevation above sea level and the Base Flood Elevation (BFE) measurement, which is how high water is predicted to rise during the next serious storm. The larger this difference is, the more expensive your flood insurance premium becomes. If the difference is small, the insurance is cheaper. In order to purchase a standard rate policy, you need to have an elevation certificate, which is a formal document issued by a surveyor or engineer that states your home’s elevation above sea level.

NYC’S MAPS ARE CHANGING

FEMA periodically updates the maps that it creates for flood hazard zones across the country. The current maps for New York City were adopted in 1983 and do not accurately reflect today’s risk of flooding. At this point, it is unclear when the new Flood Insurance Rate Maps will go into effect or what form the maps will ultimately take. Our best estimate is that it will happen in the next two to five years.

Grandfathering

When the maps change, some homeowners will have the option to pay rates based on the current map; this is called “grandfathering.” Most homeowners who buy flood insurance before the maps change and do not let their policies lapse are eligible, as are properties not currently in a flood zone.

What Are My Options For Coverage?

The maximum amount of insurance you can buy for your structure is $250,000, and the maximum amount of insurance you can buy for your contents is $100,000.

If you own a single-family home, it is important to know that if you insure your home for less than 80% of its replacement cost value (RCV), then you will only receive what’s called the “actual cash value” (ACV) of the flood damage when you make a claim. This means that instead of being able to receive insurance for the cost of repairing your home, you will only receive reimbursements for the depreciated value of whatever structural parts – beams, drywall, floors, etc. – were damaged.

Rising Tides, Rising Rates

Read the Center’s landmark report on flood Insurance and New York City's affordability crisis

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