Let’s assume that our loan amount is 500,000 on 4 residential property in a SPHA, making the maximum NFIP at 4 x 250000, or 1,000,000. The flood insurance and RCV on the structures is below. Will you please let me know if the coverage for loan is sufficient that although two of the flood policies on the structures is less than the individuals dwellings, however the total of flood insurance exceeds the total of the RCVs (which to me seems to be the "insurable value if I'm reading the FAQs correctly)?

Flood Insurance
Amount RCV
50,000 60,000 (-10,000)
70,000 50,000
70,000 80,000 (-10,000)
80,000 70,000

270,000 260000

That looks correct. The lesser of the three (balance, max available, insurable value) is $260,000 and you have sufficient insurance at $270,000.

You have two properties that are over insured and two properties that are under insured. That is not going to fly. Plus you need to be using ACV as RCV only applies to primary residences.

Randy, this is what perplexes me. COMPL101TX response seems accurate as to the definitions and examples of "insurable value" as discussed in the FAQs, that the total of all the properties is used. On the other hand, apportioning the insurance where two are more than needed and two are under seems like we are risk of criticism for not establishing the appropriate amounts needed

If the RCV of a building is $70,000 on a building that can be insured at an RCV level, then the maximum available insurance on that building is $70,000.

It is not necessarily $250,000. Someone can write a policy for $250,000, but it is only going to pay out $70,000 as that is the maximum insurance available.

Otherwise, in your scenario, why not get $250,000 on one building and $5,000 on the other three for a total of $2650,000 and call it good?

"Otherwise, in your scenario, why not get $250,000 on one building and $5,000 on the other three for a total of $2650,000 and call it good?"

Okay. So what you are saying is even if the total "insurable value" is okay regulatory-wise as to minimum amounts, the main risk is that the insurance amounts were established too high in two instances, that the borrower is paying for too much as the payout of a claim wouldn’t exceed the RCV anyway? Is that right?

Remember - as Randy pointed out earlier - unless these are owner occupied dwellings you need to find the actual cash value as your benchmark for flood insurance as that is the number the insurance company will pay out in the event of a flood.

Correct. Look at it this way. Just because you have multiple buildings, there is no change in the basic requirements. You cannot make a $500,000 loan secured by a building with an insurable value of $80,000 and $70,000 in flood insurance. Why would adding more buildings change that?

I don't disagree with the concept that the property should not have more insurance than the RCV (assuming RCV is used and not ACV), but per the following proposed FAQ, flood insurance could be allocated among the buildings in varying amounts:

AMOUNT 6. Is flood insurance required for each building when the real estate security contains more than one building located in an SFHA in a participating community? If so, how much coverage is required?

Yes. The lender must determine the amount of insurance required on each building and add these individual amounts together. The total amount of required flood insurance is the lesser of:

· The outstanding principal balance of the loan(s); or
· The maximum amount of insurance available under the NFIP, which is the lesser of:
o The maximum limit available for the type of structures; or
o The “insurable value” of the structures.

The amount of total required flood insurance can be allocated among the secured buildings in varying amounts, but all buildings in an SFHA must be covered in accordance with the statutory requirement.

Example: Lender makes a loan in the principal amount of $150,000 secured by five nonresidential buildings, only three of which are located in SFHAs within participating communities.

- Outstanding loan principal is $150,000.
- Maximum amount of insurance available under the NFIP.
o Maximum limit available for the type of structure is $500,000 per building for nonresidential buildings (or $1.5 million total); or
o Insurable value ($100,000 for each nonresidential building for which insurance is required, or $300,000 total).

Amount of insurance required for the three buildings is $150,000. This amount of required flood insurance could be allocated among the three buildings in varying amounts, so long as each is covered in accordance with the statutory requirement.

The very important twelve words of that passage is:

so long as each is covered in accordance with the statutory requirement.

1. Each building must be insured.
2. No building can be insured for more than its' insurable value.
3. The maximum is $250k on residence.

Apply these 3 rules to your scenario until you reach the "lesser of 3" requirement.

I have a situation similar that I have questions on. We have a home that was transformed into a treatment center. The home is not in a flood zone, but however, a well shed and a storage shed are in a flood zone. The loan amount is $1.1 Million.

I know that we will need to have flood insurance on these two shed's but our appraiser did not give any specific value to either of the sheds. How do I prove what the ACV is? The ACV will be the lesser of the loan amount and the maximum coverage. I am just trying to determine how is best to prove the ACV if it is not listed on the appraisal?

Get an insurance agent out there and have them give the borrower a quote. That is the problem with not doing your FHD before ordering your appraisal.


AMOUNT 2. What is the “insurable value” of a building and how is it used to determine the required amount of flood insurance?

The insurable value of the building may generally be the same as 100 percent Replacement Cost Value (RCV), which is the cost to replace the building with the same kind of material and construction without deduction for depreciation .In calculating the amount of insurance to require, the lender and borrower (either by themselves or in consultation with the flood insurance provider or other appropriate professional) may choose from a variety of approaches or methods to establish the insurable value. They may use an appraisal based on a cost-value (not market-value) approach, a construction-cost calculation, the insurable value used on a hazard insurance policy (recognizing that the insurable value for flood insurance purposes may differ from the coverage provided by the hazard insurance and that adjustments may be necessary), the replacement cost value listed on the flood insurance policy declarations page, or any other reasonable approach, so long as it can be supported.