Do I need flood insurance for my apartment building?
If your property is in a FEMA-designated flood zone, your lender almost certainly requires it. Even outside flood zones, flood coverage is worth considering.
Flood damage is excluded from standard commercial property insurance policies, so a separate flood policy is needed if you want protection against this peril. If your apartment building is located in a Special Flood Hazard Area (SFHA) as designated by FEMA, your mortgage lender is required by federal law to mandate flood insurance as a condition of the loan. This requirement originates from the National Flood Insurance Act of 1968 (42 U.S.C. § 4012a) and is enforced through the Flood Disaster Protection Act of 1973, which makes flood insurance a mandatory purchase condition for federally backed mortgages on properties in SFHAs.
Even if your property is outside a high-risk flood zone, flooding can still occur. According to FEMA, roughly 25% of all flood claims come from properties in moderate-to-low risk areas. Heavy rainfall, overwhelmed storm drains, and nearby construction can all cause flooding in areas that have never flooded before.
Flood insurance is available through the National Flood Insurance Program (NFIP) and through private flood insurers. NFIP policies have coverage limits that may be insufficient for larger apartment buildings (the FEMA NFIP Flood Insurance Manual caps commercial building coverage at $500,000 per building under a Standard Flood Insurance Policy), so owners of larger properties often need to supplement with private excess flood coverage. Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) and Freddie Mac's Multifamily Seller/Servicer Guide (Chapter 58) both require flood coverage at least equal to the outstanding loan balance for properties in SFHAs. The cost of flood insurance depends on the property's flood zone designation, elevation, building construction, and the coverage limits selected.