Why Flood Insurance Coverage Is Different than Property Insurance Coverage

By Sundeep Jay, RS / Published August 2021

It’s hurricane season again! The National Oceanic and Atmospheric Administration (NOAA) has predicted another above-normal hurricane season. NOAA predicts a 60 percent chance of an above-normal season, a 30 percent chance of a near-normal season, and a 10 percent chance of a below-normal season. However, they are not expecting as busy a hurricane season as was seen in 2020.

     Florida is in a high-risk flooding area due to the frequency of storms and proximity to large bodies of lake water and/or the ocean. Insurance to cover flooding is not provided in a typical homeowner’s policy. Flood insurance must be purchased separately. If a condominium building is in a flood zone, then the unit owner’s mortgage company will require the association to carry flood insurance. In some cases, the mortgage company may be satisfied if the unit owner carries their own flood insurance even though the association may not be insured. Sellers and buyers should look into this matter prior to entering into a real estate purchase contract.

     It is a good idea to evaluate and review your flood and property insurance policy with your insurance agent at least once every year. Board members should investigate when their last flood and property insurance costs valuation reports were completed for their condominium building(s) and/or common area assets. The State of Florida requires all condominiums to update their flood and property insurance valuation reports every three years. An underinsured property may not get the full coverage in case of a complete destruction of the property. So, it is highly advisable to update these valuation reports and maintain up-to-date insurance coverage.

Photo by iStockphoto.com/JillianCain

     For the purpose of this article, I want to focus on the various aspects of flood insurance. The State of Florida does not really have its own regulations related to flood insurance. Most of the flood insurance coverage is federally regulated and provided through the National Flood Insurance Program (NFIP), which is administered through the Federal Emergency Management Agency (FEMA). To qualify for flood insurance, a community must join the NFIP and agree to enforce sound floodplain management standards. Once the community is certified through NFIP, the residents in that community are allowed to participate and purchase flood insurance coverage through this organization. 

     According to FEMA, any area affected by a flood is defined as an “excess of water on land that is normally dry, affecting two or more acres of land or two or more properties.” The flooding situation as per FEMA can be permanent, temporary, partial, and/or complete submergence of the property. Flooding of one property is not considered for flood insurance coverage purposes under a NFIP policy unless the area of water covers two acres or more. The flood must also come from one of the following:

1. The overflow of inland lake or ocean waters
2. The unusual and rapid accumulation or runoff of surface waters from any source
3. Mud slides and flowing mud on the surface of normally dry land areas
4. The collapse or subsidence of land along the shore of a lake or other body of water as a result of erosion or undermining caused by waves or currents of water exceeding the cyclical levels, which results in flooding

     Most condominium associations in flood hazard areas purchase flood insurance for the association’s building(s), common area assets, and the individual residential units. Unlike the typical condominium property insurance coverage, flood insurance also covers the individual units’ floor coverings, wall coverings, ceiling coverings, electrical lighting and fan fixtures, water heaters, built-in bathroom cabinets and countertops, and built-in kitchen cabinets and countertops. Upgrades to the above listed items are typically not included, and it is advisable that each unit owner obtain their own insurance for the value above the standard package provided by the insurance replacement costs. For example, if the original developer only provided Formica counter tops, then the valuation report will most likely only reflect Formica counter tops versus granite counter tops. The same is true for carpet versus upgraded tiles or marble flooring. In all cases, personal property of the association and the individual unit owner(s) is always excluded from coverage. The association and the individual unit owner(s) are expected to obtain separate coverages for their personal items.

     Lastly, flood insurance also covers the foundation of the building, where property insurance typically only covers the building and excludes the foundation-related components of the property. 

     If your condominium association has flood insurance, and you are concerned about the amount of the association’s existing coverage, even if you live in a high-rise building, you can purchase insurance for a single-family residence for additional protection. FEMA’s National Flood Insurance Program provides different ways a condominium unit owner can protect their own unit.

     If you are interested in finding out more information from FEMA and whether your property currently is in a high flood zone area, please visit https://msc.fema.gov/portal/home.

Sundeep Jay

J.R. Frazer Inc.

     Sundeep Jay is certified as a senior reserve specialist. He has been completing reserve studies and condo/HOA property & flood valuation reports for a little more than five years with J. R. Frazer Inc. He graduated with a degree in accounting and computer science from the University of Central Florida. Throughout his career, he assisted in building more than 70 to 80 residential homes as a real estate broker while also operating his own mortgage company. For more information, call (561) 488-3012, email JRFrazerENT@aol.com, or visit www.JRfrazer.com.