Glossary
NFIP, defined
The federal government's program, run through FEMA, that sells flood coverage in communities that agree to manage development in their floodplains. Policies are written either directly or through private carriers acting as agents for the program, and the terms are the same either way.
In practice
Its policies have fixed shapes: separate building and contents coverage with their own limits and deductibles, a cap on each, a waiting period before new coverage starts, and no coverage for loss of use or for most property in a basement. It pays for rising surface water, not a burst pipe or sewer backup, and it exists because the private market largely withdrew from the peril. A lender with a federally backed mortgage will require a policy on a home in a high-risk zone, and it is the usual route for a home the private market will not quote. The rating method now prices each building individually on distance to water, elevation, construction and replacement cost rather than by zone alone. Private flood policies compete with it on limits and terms, and the analysis shows both when both are available.
A worked example
Suppose a homeowner in a mapped high-risk area buys a program policy with the building limit at its maximum and contents at $100,000, with a thirty-day wait before it starts. A monsoon flash flood three months later puts a foot of water through the house, causing $80,000 of building damage and $25,000 of contents loss. Each side pays less its own deductible, but the family's hotel bill while the house dries is not covered. Hypothetical figures.
Applies to: Flood Insurance