Flood Insurance

Is the property within an area requiring flood insurance protection?

Threshold: The Flood Disaster Protection Act of 1973, as amended, requires that property owners purchase flood insurance for buildings located within Special Flood Hazard Areas (SFHA), when Federal financial assistance is used to acquire, repair, improve, or construct a building.

Duration of Flood Insurance Coverage. The statutory period for flood insurance coverage may extend beyond project completion. For loans, loan insurance or loan guarantees, flood insurance coverage must be continued for the term of the loan. For grants and other non-loan forms of financial assistance, flood insurance coverage must be continued for the life of the building irrespective of the transfer of ownership.

30-Day Waiting Period
There is typically a 30-day waiting periodfrom date of purchasebefore a new flood policy goes into effect. Here are the only exceptions:

• If your lender requires flood insurance in connection with the making, increasing, extending, or renewing of your loan;
• If an additional amount of insurance is required as a result of a map revision;
• If flood insurance is required as a result of a lender determining that a loan that does not have flood insurance coverage should be protected by flood insurance; or
• If an additional amount of insurance is being obtained in connection with the renewal of a policy.

Dollar Amount of Flood Insurance Coverage. For loans, loan insurance or guarantees, the amount of flood insurance coverage need not exceed the outstanding principal balance of the loan. For grants and other non-loan forms of financial assistance, the amount of flood insurance coverage must be at least equal to the maximum limit of coverage made available by the Act with respect to the particular type of building involved (i.e., Single Family, Other Residential, Non-Residential, or Small Business), or the development or project cost, whichever is less. The development or project cost is the total cost for acquiring, constructing, repairing or improving the building. This cost covers both the Federally-assisted and the non-Federally assisted portion of the cost, including any machinery, equipment, fixtures, and furnishings. If the Federal assistance includes any portion of the cost of any machinery, equipment, fixtures, or furnishings, the total cost of that item must also be covered by flood insurance.

Proof of Purchase of Flood Insurance Protection. Once HUD has approved a specific SFHA property, the grantee's file for any SFHA property shall contain proof of purchase of flood insurance protection. The standard documentation for compliance is the Policy Declarations Form issued by the National Flood Insurance Program (NFIP) or by any property insurance company offering coverage under NFIP. The insured should have its insurer automatically forward to the grantee, in the same manner as to the insured, an information copy of the Policy Declarations form, which is used to verify compliance.

Documentation: Grantees must estimate the amount and period of flood insurance coverage that is required for building in a SFHA:

• Estimate coverage amount of flood insurance
• Indicate coverage period
• Year in which flood insurance policy is to start
• Year in which flood insurance policy is to end