The property must be located in a "participating community" where the Federal Emergency Management Agency (FEMA) has authorized the sale of the NFIP. To participate in the program, a community must undergo an application process, which includes adopting local flood plain management regulations, which impose requirements such as standards on new building construction.

Flood insurance can be written within participating communities for:

• Single family dwellings, condo units and multifamily homes.
• Five-or-more family apartment complexes or condominium associations.
• Nonresidential businesses, such as mercantile buildings, commercial agriculture, warehouses and hotels.
• Other nonresidential structures, including houses of worship, nonprofit buildings, schools, state and local government buildings, noncommercial farms, garages and club houses.

The definition of flood

The NFIP policy defines a flood as:

(1) A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from:

a) overflow of inland or tidal waters.

b) unusual and rapid accumulation or runoff of surface waters from any source.

c) Or mudflow

(2) Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

Crews clear mud and debris from a road following a flash flood Tuesday, Sept. 15, 2015, in Colorado City, Ariz. Officials say the bodies of two people killed in flash flooding in southern Utah were recovered in Arizona about two and a half miles downstream, while the bodies of six others were recovered in Utah. (Photo: Rick Bowmer/AP Photo)

Policy exclusions

The NFIP policy covers direct physical damage from a flood to the structure and covered contents within the structure. Policyholders should be made aware of the following limitations and exclusions:

• Coverage for basement contents is limited to certain items such as the furnace, water heater and circuit breaker (improvements such as finished walls, floors and furnishing are excluded).
• Coverage is excluded for additional living expenses, loss of revenue and business interruption; loss of access to the property; and outside property such as trees, septic tanks, fences and swimming pools.

NFIP policy forms

The Standard Flood Insurance Policy (SFIP) has three forms with the following coverage limitations:

(1) Dwelling Form (residential properties)

a) Building coverage up to $250,000, paid on a replacement cost basis if at the time of the loss the insured lived in the home 80% of the time and the structure was insured for at least 80% of the replacement value, otherwise claim settled on actual cash value (ACV) basis.

b) Contents up to $100,000, paid on an ACV basis.

(2) General Property Form (commercial properties)

a) Building coverage up to $500,000, paid on an ACV basis.

b) Contents up to $500,000, paid on ACV basis.

(3) Residential Condominium Building Association Policy

a) Building coverage limited to $250,000 multiplied by the number of units in the structure or the replacement cost (whichever is lesser); contains an 80% coinsurance clause.

b) Contents up to $100,000 for commonly-owned association contents, paid on ACV basis.

(Photo: Thinkstock)

Elevation maps and flood zones

One of the key factors that help determine a NFIP flood insurance rate is the flood "zone" where the property is located. Flood insurance rating engines allow agents to quickly determine the zone, as well as provide additional information such as the date the community joined the program and the prior flood zone (if there had been a flood map change).

Areas are divided into:

Special Flood Hazard Area (SFHA)

• SFHAs have a 1% chance of flooding in any given year.
• V zones (stands for velocity) are typically along waterfront areas and may generate the highest flood insurance premiums.
• A zones (stands for accumulation) are generally off waterfront areas, but still at high risk of flooding.

Non-Special Flood Hazard Area (NSFHA)

• Properties in B, C, D and X zones are considered low-to-moderate risk areas.
• These properties have a 0.2% chance of flooding annually and may receive reduced rates.
• According to the NFIP, 20% of all flood insurance claims occur in moderate-to-low risk areas.

Pre- and post-FIRM structures

Buildings covered by flood insurance are often referred to as Pre- or Post-FIRM. A building’s classification has an impact on its rates.

• Pre-FIRM structures were constructed before the effective date of the first Flood Insurance Rate Map (FIRM) for a community. These buildings were built before detailed flood data and flood elevations were provided to the community and therefore not constructed with flood protection in mind. Often, they are eligible to receive "subsidized" rates.
• Post-FIRM structures were constructed or substantially improved after the issuance of a community’s first flood map. These structures must comply with FEMA’s flood plain management requirements for the community.

Agents can access these resources below for additional information:

• NFIP Policy Forms: View or print the three policy forms discussed in this article.
• NFIP Summary of Coverage: Easy-to-read guide about the Dwelling Form, what it covers, exclusions and how damaged items are valued at the time of a loss.
• NFIP Community Status Book: A listing of communities participating in the NFIP.
• NFIP Flood Definitions: A listing of terms and acronyms commonly used by the NFIP.
• Flood Map Service Center: FEMA’s online map service for looking up property flood zones.
• FloodSmart: Agent and consumer flood insurance news and resources.
• FloodTools: Visual flood maps, loss calculators, claimant videos and educational materials.
• NFIP Training & Workshops: Online tutorials for agents.
• iService: Register to receive news bulletins from the NFIP.

Paula M. Keith, CPIW, is a WYO client relations director at Aon National Flood Services. Contact her at [email protected].

Related: How insurance agents can counsel clients after a flood