The "80%" rule is an insurance industry term to mean that something is with tolerance of being insured for the replacement value. For instance, if I buy hazard insurance of $100,000 at the time I purchase a home for $100,000, I have purchased replacement value insurance. If my home appreciates, I might be underinsured, but if I'm within 80% of the value, then I'm said to still have "replacement value."
The Flood Insurance requirements do not require you to have replacement value insurance. Instead, you must have flood insurance at least equal to the following minimums:
- Outstanding principal balance of all loans secured by the property;
- The appraised value of the property minus the land value (the improved property value); and
- The maximum insurance available under the principal flood insurance program ($250,000 for residence & $500,000 for nonresidential buildings).
First published on BankersOnline.com 1/20/03