By: Chris Boggs, Big "I" Executive Director of Risk Management and Education
This article was originally published within the VU Research Library here August 2021.
Compared to more common property insurance policies, National Flood Insurance Program (NFIP) policy forms are quite intriguing. First, the Federal government wrote them; and second, they use terms and conditions not found in other property policy forms. The three NFIP coverage forms are highlighted in the following paragraphs.
Three Policy Forms
Each Standard Flood Insurance Policy (SFIP) form issued by the Federal Emergency Management Agency (FEMA) specifies the terms, conditions, and agreement between FEMA (as the insurer) and the named insured. Major provisions are essentially the same among the three forms with the only differences being the qualifications for coverage, the limits available and the property valuation methods applied.
Dwelling Form
Approximately 85 percent of current NFIP policies are written using the dwelling form. It is designed for one- to-four-family structures primarily occupied as a residence. Homeowners, residential renters, owners of two-to-four-unit residential structures, residential townhouse or row house owners, and the owner of an individual unit in a condominium building are eligible for the dwelling form.
Property insured on the dwelling form is valued at replacement cost provided two requirements are met:
• Property is insured to at least 80 percent of
its value or the maximum coverage
available—whichever is less; and
• The insured lives in the residence at least
80 percent of the year.
If either of these requirements is not met, the most the insured is going to receive is the property's actual cash value (ACV).
Although the policy states that replacement cost is paid if 80 percent of the value is carried, this is not a coinsurance form, it is an “insurance-to-value" form.
Like the homeowners' form, the SFIP dwelling form pays the greater of actual cash value or the amount developed in the insurance-to-value calculation; but only if the insured lives at the residence 80 percent of the year. If both conditions are not met, losses are paid at actual cash value. These caveats are why this is not the equivalent of a coinsurance form.
In regular program communities, coverage for buildings and contents is limited to a specified maximum. Current (as of August 2021) maximum limits are $250,000 on the structure and $100,000 on contents (which applies to renters as well).
General Property Form
Owners or lessees of “other residential" and nonresidential structures or units are eligible for protection under the General Property Form. Residential structures with five or more units, hotels or motels, apartment buildings, cooperative condominiums, assisted living facilities and dormitories are examples of “other residential" structures insurable on the general property form. Nonresidential structures, as is evidenced by the name, are any structures where people do not live and includes stores, office buildings, manufacturing facilities, warehouses, churches, schools, detached garages, commercial condominiums, and any other eligible structure not normally considered a place of residence.
Structures and contents insured on the general property form are valued at actual cash value with no other option available.
Maximum limits differ depending on the classification of the structure. “Other residential" structures are limited to a maximum of $500,000 on the structure and $100,000 on the contents. Nonresidential structures are eligible for maximum limits up to $500,000 on the building and another $500,000 for the contents. (As of August 2021.)
Residential Condominium Building Association Policy (RCBAP)
The Residential Condominium Building Association Policy (RCBAP) provides building coverage and, if desired, can be used to provide contents coverage for common use personal property for residential condominium buildings, provided 75 percent or more of the building is residential use. Coverage is written in the name of the association for the benefit of the association and the unit owners. Only buildings with a condominium form of ownership are eligible for this coverage form. The unit owners must take title and deed to specific units.
Cooperative condominiums are not eligible for the RCBAP as title to a specific unit is not passed to the occupier of the unit; an “owner" buys stock in the cooperative and is allowed to live in a particular unit (based on the amount of stock purchased). Timeshare buildings may be eligible for the RCBAP if condominium-style ownership is offered in jurisdictions which allow that title to individual units be vested in the owners' names (a fee simple-type arrangement allowing the title to be transferred to heirs).
Property insured on the RCBAP is valued at replacement cost. In fact, this is the only form that offers a true insurance-to-value (coinsurance) clause similar to the homeowners' or commercial property policy.
Much higher limits are available for buildings insurable under the RCBAP. Up to $250,000 per unit, per building is available. For example, an insured can purchase up to $2.5 million in protection for a 10-unit building. Coverage for commonly owned personal property is limited to $100,000 per building.
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