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What Does Flood Insurance ‘Substantial Damage’ Mean?

If a flood causes “substantial damage,” the cost of repairs is 50% or more of the property’s market value and a rebuild must follow local NFIP flood standards.

WASHINGTON – The U.S. Department of Homeland Security’s Federal Emergency Management Agency (FEMA) issued information on how flood insurance works following a storm.

If the community participates in the National Flood Insurance Program (NFIP), substantial damage determinations are required by local floodplain-management ordinances – rules that had to be put in place before residents of the community could purchase flood insurance through NFIP.

“Substantial damage” applies to a structure in a Special Flood Hazard Area (SFHA) for which the total cost of repairs is 50% or more of the structure’s market value before the disaster occurred, regardless of the cause of damage. The percentage may vary among jurisdictions but can’t be below NFIP standards.

For example, if a structure’s market value before the damage was $200,000 and repairs are estimated to cost $120,000, that structure is substantially damaged. Land value is excluded from the determination.

FEMA doesn’t determine substantial damage and doesn’t notify property owners of a damage determination, though FEMA damage assessment teams may respond to local requests to assess the extent of disaster-caused damage to some structures. The data is provided to local jurisdictions’ requests, which may make substantial damage determinations based on their own ordinances. That information helps property owners decide whether or not to repair or replace a damaged dwelling, and find out whether additional work is needed to comply with local codes and ordinances.

If a building in a floodplain is determined by the local official to be substantially damaged, it must be brought into compliance with local floodplain management regulations.

Owners may:

  • Elevate structures, or change them in some other way to comply with local floodplain regulations
  • Relocate or demolish the structure
  • Flood proof a non-residential or historical structure

All property owners should check with local building officials to determine which permits for repairs are required before beginning work. Depending on local codes and ordinances, there can be serious consequences for not complying with the permitting process.

Property owners who have a flood insurance policy through NFIP and a substantially damaged building (from flooding) in a SFHA may be able to use additional funds – known as Increased Cost of Compliance (ICC) – from their flood insurance policy (up to $30,000) to help defray the costs of elevating, relocating, demolishing or flood proofing a non-residential structure.

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