Flood in Practice

A homeowners policy excludes flood, so a Michigan client whose house sits near a river, an inland lake or the Great Lakes shoreline depends on the National Flood Insurance Program, or NFIP, for that loss. The producer’s work has three parts: choosing who writes the policy, setting coverage that matches the house, and guiding the client through a claim. The policy is the standard flood policy in the NFIP manual (October 2025 edition), which FEMA revises from time to time. Names and loss figures below are invented for practice.

Two Ways to Write the Same Policy

Under the Write Your Own program, or WYO, private property and casualty companies issue and service the standard flood policy under their own names. The WYO company issues, endorses, underwrites, renews and cancels the policy, and it adjusts and pays the claims. It may withhold an expense allowance from the premium for that work, and the federal government keeps responsibility for underwriting the losses, so the company does not bear the flood loss as it would a homeowners loss.

Under the government route, FEMA sells and services policies through a contracted servicing agent called the NFIP Direct. The NFIP Direct is also the only servicer of group flood policies and of buildings with severe repetitive losses.

The two routes sell the same product. Every NFIP policy except the group flood policy follows the same policy terms, rating method and processes in the manual. The choice between them turns on service: which company the client already uses, how the producer is appointed and who will handle the claim.

Coverage, Limits and Deductibles

The dwelling form has four coverages. Coverage A insures the building, Coverage B insures personal property inside it and Coverage C adds other coverages such as debris removal and loss avoidance measures. Coverage D, Increased Cost of Compliance, pays up to $30,000 toward elevating, floodproofing, relocating or demolishing a building to meet a floodplain ordinance, if eligible. In the October 2025 manual the maximum for a single-family home in the Regular Program is $250,000 for the building and $100,000 for contents. Those maximums, and the deductible choices, change on FEMA’s schedule, so a producer confirms them in the current manual.

Two rules decide most claims. First, a building loss is settled at replacement cost only if the dwelling is a single-family principal residence and the insurance on it is at least 80% of its full replacement cost, or is the maximum available under the NFIP. Below that, the loss is settled at actual cash value. Second, “separate deductibles apply to the building and personal property,” so the policy applies the two deductibles to the two coverages, and the client pays both on a loss to both.

A Worked Flood Claim

Marta Soto owns a single-family home that is her principal residence, in a Michigan river town. The house would cost $240,000 to replace. She carries $200,000 of building coverage and $60,000 of contents coverage, with a $2,000 building deductible and a $1,000 contents deductible. A spring flood puts three feet of water in the basement and eight inches on the main floor.

Step 1: the 80% test. Eighty percent of $240,000 is $192,000. Marta carries $200,000, so she qualifies for replacement cost.

Step 2: sort the damage. Coverage in a basement is limited to a list of items. Finished paneling and carpet below the first floor are not on the list.

Damage	Amount	Covered
Main floor drywall and flooring	$14,500	Yes, building
Furnace and water heater in the basement	$7,800	Yes, building (listed items)
Finished basement paneling and carpet	$9,200	No
Main floor furniture	$11,400	Yes, contents
Washer and dryer in the basement	$700	Yes, contents (listed items)
Collectibles on the main floor	$3,600	Yes, limited to $2,500
Keepsakes stored in the basement	$2,100	No

Step 3: the building. The covered building damage is $14,500 plus $7,800, or $22,300. Marta does not wait for repairs. She claims on an actual cash value basis, which the form allows if she tells the insurer within 180 days that she intends to repair. Actual cash value of the covered damage is $19,400, so the first payment is $19,400 less $2,000, or $17,400. When the repairs are finished, the settlement is the least of the building limit, the replacement cost and the amount actually spent. At $22,300 spent, the total payment is $22,300 less $2,000, or $20,300, so the second payment is $2,900.

Step 4: the contents. The policy settles personal property at actual cash value, and the amounts in the table are taken at that value. The form limits art, collectibles, jewelry and similar property to $2,500 for any one loss. The payable amount is $11,400 plus $700 plus $2,500, or $14,600. The contents deductible takes $1,000 and the payment is $13,600.

Step 5: the total. Marta receives $20,300 plus $13,600, or $33,900. A single $2,000 deductible would have produced $34,900, so applying one deductible to a loss that touches both coverages overpays the claim by $1,000. Marta bears $12,400 of loss that the policy does not pay, which is $9,200 of basement finish, $2,100 of basement keepsakes and $1,100 of collectibles above the special limit, as well as both deductibles.

The Claim Process

The policy sets the steps, and the client should know them before a loss.

1. Give prompt written notice to the insurer.
2. Separate the damaged and undamaged property as soon as reasonably possible, and protect it from further damage.
3. Prepare an inventory showing the quantity, description, actual cash value and amount of each loss, with bills and receipts.
4. Send the insurer a signed and sworn proof of loss within 60 days after the loss. An adjuster may supply the form, but the deadline stays.
5. Expect payment 60 days after the insurer receives the proof of loss and either agrees on the amount, a judgment is entered or an appraisal award is filed.

If the insurer rejects the proof of loss in whole or in part, the insured may file an amended proof of loss, as long as it is filed within 60 days of the date of the loss. A suit must start within one year after the date of the written denial of all or part of the claim, in the United States District Court for the district where the property was located.

Michigan Flood Exposure

Michigan borders four Great Lakes and has many rivers and inland lakes. The policy defines flood as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land, or of two or more properties, one of them the client’s, from overflow of inland or tidal waters, unusual and rapid accumulation or runoff of surface water, or mudflow. Water that discharges from a sump or sump pump, or backs up through a sewer or drain, is excluded unless a flood in the area was the proximate cause. Lake levels can stay high for a long time, and the policy has a provision for this. When rising lake waters have flooded an insured building continuously for 90 days or more, and a loss at or above the limit is reasonably certain, the insurer pays the lesser of the building limit plus the deductible or the maximum payable for one building loss, without waiting for further damage, if the insured signs a release of further claims.

New coverage generally takes effect after a 30-day waiting period, with exceptions such as a loan closing, so a client cannot buy it when the storm warning comes.

Lesson summary

• WYO companies write and service the standard flood policy under their own names and keep an expense allowance, while the federal government keeps responsibility for underwriting losses. NFIP Direct is FEMA’s own servicing agent.
• Policies written either way follow the same terms, rating method and processes, so the producer chooses the route on service.
• A flood building loss is settled at replacement cost only for a single-family principal residence insured to at least 80% of replacement cost or the program maximum.
• The building and contents coverages carry separate deductibles, and each applies when both are damaged.
• Coverage in any basement, and below the lowest elevated floor of an elevated post-FIRM building in the zones the form names, is limited to a listed set of items, and a $2,500 special limit applies to art, collectibles and jewelry.
• The claim requires prompt written notice, an inventory and a sworn proof of loss within 60 days after the loss.