Is an overnight rental cabin considered residential or commercial for flood coverage? We are getting a loan from another institution and are afraid the flood coverage in place is not correct.

It is a residential structure. People live in it, even if only for short periods of time.

I am just confused right now, and I might have worded my original question correctly. We are finding information that states if occupancy is less than 6 months, its considered "non-residential". The overnight cabin has an RCV of $633,000 and the loan amount is just over $540,000. The coverage in place is $250,000.

If it were me, I'd call the NFIP to see what coverage the building qualifies for. I've had good luck in the past getting quick answers to these types of questions.

I suggest reviewing the following beginning on page GR 5.

http://www.fema.gov/pdf/nfip/manual201205/content/03_generalrules.pdf


Based on the description of "other residential building" on page GR 6 I would place the rental cabin in that category (tourist home).

Dan, I disagree unless the cabin is more than a typical cabin.

Other Residential Building

This is a residential building that contains more than 4 apartments/units.

While they use the term tourist home later in the description, the more than 4 apartments/units is still the overriding factor. I have stayed in "tourist homes" that have more than 4 units.

I agree Randy. For whatever reason I skipped right over the wording "contains more than 4 apartments/units".

This would have to then fall within the single family residential designation.

The difference is payout, ACV vs RCV, as the people with Jersey Shore property found after Superstorm Sandy.

KB, the actual difference is $250,000 versus $500,000 in flood insurance being available. The payout for non-owner occupied property is always ACV regardless of the classification.

But your point is well taken, as I see the OP did quote the RCV, which is not the correct number to place in the flood insurance equation for this situation.

Right. You will never get RCV on a non-primary home. That can make a much larger difference than the 250 vs 500 depending upon property value.

Has there been any update to these rules? I have an agent that is insisting a rental cabin must go through the general property form. I looked at the most recent insurance manual, and it looks like they got rid of the 5 or more unit requirement for tourist homes and rooming homes?
Non-Residential Business
A building in which the named insured is a commercial enterprise primarily carried out to generate income and the coverage is for:
1. A building not designed for habitation or residential uses;
2. A mixed-use building in which the total floor area devoted to residential
uses is:
– 50 percent or less of the total floor area within the building if the
residential building is a single-family property; or
– 75 percent or less of the total floor area within the building for all other
residential properties.
3. A building designed for use as office, retail space, wholesale space,
hospitality space, or for similar uses; or
4. The following buildings where the normal occupancy of a guest is less
than 6 months:
– Condominium buildings;
– Apartment buildings;
– Hotels and motels;
– Tourist homes; or
– Rooming houses

Not sure what manual you are looking at?

Other Residential

A residential building designed for use as a residential space for 5 or more units, or a mixed-use building in which the total foor area devoted to nonresidential uses is less than 25% of the total foor area within the building.

This category includes the following buildings where the normal occupancy of a guest is 6 months or more:
• Dormitories;
• Assisted-living facilities;
• Condominium buildings;
• Apartment buildings;
• Hotels and motels;
• Tourist homes; and
• Rooming houses.

I got that from the FEMA Flood Insurance Manual Effective April 1, 2019, Section 3. How to Write, pages 9-10

https://www.fema.gov/media-library/assets/documents/178743

The agent is saying the buildings are non-residential business, not Other Residential, based on those Occupancy descriptions.

Hmmm - very interesting concept.

It is going to make a lot of lenders under insured if that is the case. Because that means that every 1-4 family house they have as collateral that is used for VRBO or Airbnb is going to be underinsured if their loan amount is over $250,000 and they only have a dwelling policy.

We have an application for a loan where the applicants have a flood insurance policy that was accepted by another bank....

It is a single family rental property....the policy was written on the general property form as an "other non-residential" occupancy.

Shouldn't this type of property be on the dwelling form as "single family" occupancy and not primary residence?

Would this result in a huge increase?

That is the very question from above.

Yes, Randy...but it wasn't clear to me what the answer was.....

I am not sure that we know. It appears correct based on the Flood Insurance Manual, but someone would need to get clarification from the NFIP. If that is the case, then as I said, if you are dealing with VRBO or Airbnb properties and your loan and the insurable value of the structure is over $250,000, there a lot of underinsured properties out there.