Property Insurance Unit 9

National Flood Insurance Program (NFIP)

Created by congress in 1968 to make flood insurance available to eligible communities through federal subsidization. Managed by Federal Emergency Management Agency (FEMA)

Emergency Program

goes into effect when the community applies to the NFIP and remains in effect until the government finalizes the flood insurance rates for that community. insureds may purchase limited amounts of flood insurance for buildings and contents at subsidized rate. After regular program goes into effect, additional coverage can be purchased.

Max Limits for Flood Insurance Coverage (Emergency)

Building: $35,000

Contents (Personal): $10,000

Commercial: $100,000

Business Personal Property: $100,000

Max limits for flood insurance coverage (Regular)

Building: $250,000

Contents $100,000

Commercial: $500,000

Business Personal Property: $500,000

Regular program

after the community has been rate mapped

Deductibles

since a flood policy can be bought to insure the dwelling and contents, there are separate deductibles for each. Amount depends on type of coverage, flood program and value of the building. 

Minimum deductibles - 

Building: Varies on type of coverage, flood program, value of building

Contents: $1,000

Regular program: 

Building coverage of $100,000 or less: $1,000

Building coverage over $100,000: $1,250

Contents: $1,000

Emergency program: 

Building coverage of $100,000 or less: $1,500

Building coverage over $100,000: N/A

Contents: $1,000

Deductible applies separately to each building loss and each content loss on a per occurrence basis. Higher deductibles available

NFIP’s policies cover

described property against all direct loss or from a flood at the described location. Indirect loss or loss of use (Additional living expense) is not covered. Property is also covered at another place, either above ground or outside of the special flood hazard area, for 45 days when removed by insured to protect it from flood

Not covered

personal property in a basement or outside in the yard

Flood includes the following:

An overflow of inland or tidal waters

Unusual and rapid accumulation or runoff of surface water from any source, unless general flooding exists

Mudslides caused by accumulations of water on the ground or underground 

Collapse of land as a result of excessive erosion due to flood

Flood does not include the following

Sewer backup into a dwelling is not covered

Water from a broken water pipe, washing machine, dishwasher or water main break is not covered.

Damage from these is considered damage from “Captured” water

Increased cost of compliance

if the cost to repair flood damage is increased due to state or local flood management laws or ordinances, the policy will pay up to $30,000 to cover the extra expenses

Flood policies do not cover

• Accounts, bills, currency, deeds, evidences of debt, money, securities, bullion, manuscripts

• lawns, trees, shrubs, plants, growing crops, livestock

• aircraft, self propelled vehicles, motor vehicles

• fences, retaining walls, outdoor swimming pools, bulkheads, wharves, piers, bridges, docks, other open structures or over water

• underground structures and equipment such as wells and septic tanks

• newly constructed buildings that are in, on or over water

• structures that are primarily containers, such as gas or liquid storage tanks (does not apply to silos, grain storage or their contents)

Provisions

• single family dwellings (not mobile homes) are the only buildings that may be insured on a replacement cost basis under flood policy

• replacement cost coverage is automatically applied when the building is insured for at least 80% of replacement value or for the max amount of insurance allowed by flood program

• dwelling must be primary residence of insured

• all other losses paid on ACV basis

Write Your Own Program

Government sets the rates, eligibility and coverage limitations. Participating insurer collects premiums and pays for losses out of these premiums. If the amount of losses exceeds the premium collected, government pays the difference. If the insurer collects more in premiums than pays out in losses, excess must be returned to the government. 

Insurance company is paid a fee for its expenses

Application Procedures

Applications must be completed in full & accompanied by payment in full of the gross policy premium for coverage to go into effect. Partial payment is not allowed. Agents do not have authority to bind coverage.

30 day waiting period

• waived if bought when house has mortgage

• applies to requests to increase coverage on an existing policy

Mobile Home Insurance

dwelling policy can be used but only the basic form can be used and only mobile homes on permanent foundation are eligible. HO-4 can be used to cover the contents but not the mobile home itself. 

Mobile home package policy

HO-7

Mobile homeowners endorsement

Can be attached to an HO-2 or HO-3 policy to modify coverage for mobile homeowners

Additional coverage for mobile homes

Coverage for damage to the mobile home from collision or upset while in transit can be added as optional coverage

up to 10% of the coverage on a mobile home can be extended to cover other structures

Personal property coverage is reduced to 40% of dwelling coverage

Loss of use is reduced to 20% of dwelling coverage

Liability coverage is similar to Section 2 of homeowners policy

Additional discounts

offered for alarm systems, fire prevention, sprinkler systems and tie Dows to secure structure to pad

Personal Inland Marine Insurance

Broader coverage for personal property.

Originally developed from ocean marine insurance, which provides very broad coverage for property being transported over water. Provides same type of broad, flexible coverage for portable personal property on land (inland). Forms sometimes called Floaters.

2 most commonly used personal inland forms

Personal articles and personal effects

Personal inland marine floaters exclusions

Provide open peril coverage except: 

• war

• nuclear hazard

• wear and tear

• gradual deterioration

• insects 

• vermin

• inherent vice (condition or defect that exists within the property)

Personal inland marine pair or set condition

insurance company will not be liable for the entire value of a set when only part is damaged. 2 options:

• repair, replace or restore set

• pay the difference between ACV of the full set and ACV of the undamaged part

Personal Articles Form

provides coverage for nine optional classes of personal property (same 9 covered under homeowners scheduled personal property endorsement)

• jewelry

• furs

• cameras

• musical instruments

• silverware

• golf equipment

• fine arts

• stamps

• coins

appraisal may be required when the form is issued.

Personal Articles Agreed Value Loss Settlement form & Personal Articles Standard Loss Settlement Form

both under the umbrella of personal inland marine.

Agreed value loss is used for scheduled property only

The standard loss uses the lesser of:

• ACV

• cost to repair

• cost to replace with substantially identical item

• amount of insurance specified in policy

Personal Articles Automatic coverage

Personal articles form provides automatic coverage for certain classes of newly acquired property when the property is in a category of property that is already insured. auto coverage available for:

• jewelry

• furs

• cameras

• musical instruments

• fine art

for all property except fine art, coverage applies for 30 days; property is covered for 25% of the applicable limit of insurance or $10,000, whichever is less.

For fine art, coverage applies for 90 days and is provided for up to 25% of applicable limit of insurance

coverage for newly acquired property ceases after the 30 or 90 days unless the insured notifies the insurance company about the property during this time

Personal Effects Form

also called traveler’s baggage.

Designed for individuals and families who want to insure their personal belongings while traveling. Open peril coverage on an unscheduled basis is provided for the types of property usually carried by tourists:

clothing

cameras

sports equipment

souvenirs

personal effects form exclusions

valuable papers, tickets, passports, currency, contact lenses, artificial limbs, salespersons samples

Personal Watercraft Insurance

homeowners policies usually include watercraft coverage but is often very limited. Typically, a homeowners policy will pay up to $1,500 if something happens to your boat while at your house. May even offer liability coverage while you use your boat. Coverage may be totally excluded for certain perils.

3 general categories of watercraft

Boat: less than 26 feet in length

Yacht: more than 26 feet in length

personal watercraft: jet skis, wave runners and others

All 3 types require different coverage.

Watercraft liability coverage

excluded for boats with motors of more than specified horsepower or boats or more than a specific length

Conditions and exclusions

Must be solely used for private pleasure purposes and that coverage will not apply if the boat is hired out, charter or used to transport people or property for a fee

coverage is excluded when it is being used in an official race or speed contest (unofficial events not excluded)

Boat owner/watercraft package policies

developed by individual insurance companies and they combine property, liability and medical payments on an open peril basis. 

Insure boats under a specified length or under a max dollar value.

Losses paid on ACV basis. 

Mileage restrictions apply is boat is used offshore

Personal Yacht Policies

ocean marine forms that provide a package of property and liability coverages. Most inboard boats, sailboats with inboard auxiliary power and large pleasure boats are insured under this.

Complete package of yacht coverages includes

hull insurance (pays replacement cost for partial losses and on a valued basis for total losses

boat trailer insurance (pays on an ACV basis)

protection and indemnity (form of Bodily injury and property damage liability insurance)

medical payments coverage

federal longshore and harbor workers compensation insurance (provides benefits for maritime workers)

coverage usually provided on an open peril basis

Umbrella Insurance

refers to liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies. Some insureds need higher limits of liability coverage than can be provided by their auto or homeowners policies. 

Umbrella insurance 2 important purposes

• provide additional liability insurance over and above other owned policies

• cover some losses excluded by the underlying liability insurance

Umbrella policy coverage limits

begin at $1 million

Excess Liability Coverage

provides additional coverage when a claim exceeds an underlying policy’s limits.

Example: An auto policy provides $250,000 in coverage but the settlement calls for $500,000. Your umbrella policy would cover the additional $250,000

Insured must warrant to keep the underlying insurance in form with the minimum required limits.

If the underlying policy lapses or is reduced in coverage, umbrella will still only pay the excess. Insured is responsible for paying damages up to the underlying policy’s limit before the umbrella policy takes over

Personal umbrella Primary Coverage

personal umbrella will provide broader coverage for some claims that would not be covered by insured’s primary policies, which would be subject to the policy retention.

Insured must select a retention limit that can very from $250 to $10,000 and works like deductibles

Self insured retention (SIR) represents the amount of loss the insured must cover out of pocket. Do not apply when the umbrella acts as excess coverage to underlying liability coverage

Umbrella policy exclusions

intentional acts

liability covered under workers comp

liability arising out of business pursuits 

When a loss is excluded under both the underlying policy and the umbrella, no coverage is available