Real estate is one of the most important assets one can have regardless of owning personally or as a business entity. As they say, it’s all about location, location, location – so you better know exactly what risks you are going to be exposed to when looking to purchase new property or simply evaluating your current location(s). In the aftermath of Superstorm Sandy the scrutiny of flood insurance policies is at an all-time high, particularly, in the northeast. When assessing the value of any new or current property and the insurance requirements and costs that come with it, understanding where it is in relation to local flood zones is critical.
If your property is located within a high hazard flood zone you should anticipate an increased insurance cost as it may be mandatory to purchase. There are variety of factors that are considered when determining flood insurance premiums; these factors include: the amount and type of coverage being purchased, location, flood zone, the design and age of your structure. A flood zone is an area that has been carefully studied by the government to determine the probability of flooding due to intense storms or along the coast, severe tidal conditions and is typically found in low-lying or coastal areas. Identifying the hazard level the property is located within is essential when flood insurance coverage and costs are considered.
The Federal Emergency Management Agency (FEMA) gathers the results of extensive flood studies, and publishes Flood Insurance Rate Maps (FIRM). These maps determine the flood zone in which your property is located. FEMA has determined base flood elevations for most flood hazard zones. According to FEMA,
“The base flood elevation is an elevation above the mean sea level which indicates the predicted water surface elevation resulting from a flood that has a one percent chance of equaling or exceeding that elevation in any given year.”
In an effort to protect property owners from financial devastation due to natural disasters, the federal government has implemented various “protection” programs, of which the National Flood Insurance Program (NFIP) is the most well known. NFIP’s Commercial Structure Policy offers coverage for commercial buildings, up to $500,000 and commercial property (contents), up to $500,000. NFIP’s Residential (Dwelling) Policy will cover up to $250,000 for the building and $100,000 for contents. Excess Flood Coverage is available above the NFIP’s limits allowing you to obtain full coverage on your property. NFIP does NOT cover Business Interruption Coverage, also know as Business Income Coverage, which is designed to cover the loss of income and extra expenses a business faces after suffering a loss. This coverage is particularly important if your business was forced to temporarily shut down due to a loss and should be carefully considered.
Elevation Certificates are required in areas designated as Special Flood Hazard Areas (SFHA) in order to obtain flood insurance in most areas across the United States. If you are a mortgage holder or will be taking out a mortgage, your lender will likely require an Elevation Certificate. Elevation Certificates are used to certify building’s elevation in regards to the flood zone it lies within. If your property is located in one of the high hazard flood zones, your bank will require flood insurance to issue a mortgage. Elevation Certificates are also used in determining Flood insurance premium rates.
There are several free websites, such as Coastal Analysis and Mapping or FreeFlood which provide flood maps with elevation. Although the accuracy of these sites is undetermined at this time, for no cost, it may be worth submitting the information to an underwriter for their approval as it could, potentially, save you money if accepted. The cost of having an Elevation Certificate completed by an approved surveyor varies by geographic location and flood zone. If you are concerned with your property being particularly prone to flooding, we recommend having one completed by a state licensed land surveyor, engineer or architect. Check with your mortgage provider and local municipality, as there may be an Elevation Certificate already on file. When purchasing property, commercial or residential, it is important to understand the implications of owning real estate in a high hazard flood zone. Not having the proper understanding of the insurance requirements for your property’s flood zone can lead to unexpected costs that may impact profitability and/or value.
If you would like to learn more about flood zones along with the insurance requirements and how to best protect your properties, please contact me at 732.395.4251 or at [email protected].
