Reviewing loan file....hazard insurance in place on property in flood zone is $55,000. Flood insurance coverage needed is calculated to be $64,200. Borrower has policy for $75,000 in flood insurance coverage. Can a flood insurance policy have more coverage than regular hazard insurance?

There is absolutely no relationship unless your hazard insurance is the higher amount which only might bring into question the validity of your RCV/ACV assessment. Any requirement for a specific amount of hazard insurance is a matter of your loan agreement.

And my experience with NFIP policies is that have set amounts of insurance, rather than unique to the home itself.

The quick answer is "yes, flood insurance can (and often should) be more than hazard insurance." Why? Read this excerpt from an article I wrote years ago called "Flood Insurance Insurable Value":

Hazard insurance valuations provide a close estimate but are not an exact representation of insurable value. Hazard insurance does not give a dollar per dollar value for anything below ground. Rather, the industry standard is anywhere from 20-50 cents on the dollar. The reasoning behind this is that generally anything below ground is protected (from perils such as tornados, wind, hail, etc.) and unlikely to sustain damage. Thus, a hazard insurance value is not a true reflection of what it takes to rebuild a property. When you talk about floods; however, they are a truly unique hazard. Floods often cause damage to foundations, wipe out basement walls, etc. So, when you look at obtaining flood insurance it makes sense that the amount of flood insurance should at least be the same or even more than the hazard insurance on a particular property.


You can find the entire article in our Free Lending Tools here: https://store.bankerscompliance.com/#?keyword=free&type=