Two solutions the National Flood Insurance Program (NFIP) offers to help lower the cost of flood insurance include Preferred Risk Policies and the Grandfathering Rule.
Preferred Risk Policies, which start at just $129 a year, are only available for properties in moderate- to low-risk areas. However, recognizing the financial burden that being mapped into a high-risk area and having to purchase flood insurance can place on affected property owners, FEMA extended the eligibility period of the low-cost Preferred Risk Policies for two years for buildings that have been newly mapped into high-risk flood zones. In general, this cost-saving option is available to property owners whose buildings have a favorable flood loss history and who may or may not have received limited amounts of federal disaster assistance.
The NFIP “Grandfathering” rules recognize policyholders who have built in compliance with the flood map in place at the time of construction or who have maintained continuous coverage. These rules allow such policyholders to benefit in the premium rating for their building. Flood insurance premiums should be calculated using the new map if it results in a lower premium.
Renewal of an Existing Policy
When determining the premium you will pay for flood insurance, an insurance agent will rate your flood insurance policy based on the flood map that is in effect on the date you purchase your policy. Flood insurance policies may then be renewed and still be rated based on the flood map in effect when the policy was initially rated as long as the flood insurance coverage is continuous and the building has not been altered in a manner that would remove this benefit. For example, if the building on the property is currently mapped in an X zone, you could purchase the policy before the flood maps are adopted and keep the lower rate associated with the X zone even after the new flood maps become effective. To help maintain this grandfathering benefit for the next owner, you may transfer the policy to them at the time of sale. An insurance agent can provide you with information about eligibility for the Preferred Risk Policy and the Two-Year Eligibility Extension.
- the building was built in compliance with the flood map in effect at the time of construction; and
- the building has not been substantially damaged or substantially improved.
Under this Grandfather rule, the property owner must provide proper documentation to the insurance company.
- If you wish to keep the zone designation in effect when the building was constructed, you must provide a copy of the flood map effective at the time of construction showing where the building is located or present a letter from a community official verifying this information.
- In general, for buildings constructed in high-risk zones after the community’s first flood map was adopted, your rates are based upon the difference between the flood map’s Base Flood Elevation (BFE) and your building’s elevation. If there is a change in the BFE and keeping the BFE that existed when the building was first constructed gives you a better rate, you must provide the agent with an Elevation Certificate and a copy of the flood map effective at the time of construction. A letter from a community official verifying this information is also acceptable.
For more information on PRPs and the Grandfathering rule, you should contact your agent.