SECTION 3 – Flood Checklists and Worksheets

Flood Insurance Coverage

The amount of flood insurance required must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the National Flood Insurance Act. If a financial institution’s note or security agreement includes cross-collateralization language, resulting in multiple loans being secured by a property located in a SFHA, the collective outstanding principal balance of those loans must be accounted for in the flood insurance calculation. Financial institutions should also note that when determining the amount of flood insurance required, the flood rules do not distinguish between commercial and consumer purpose loans. Furthermore, flood insurance extends to any personal property securing a loan.

For example, if a financial institution secures the loan with a building located in a SFHA for which flood insurance is available, and the institution also takes a security interest in the contents, flood insurance is required. Financial institutions should consider the language within their loan agreement to determine whether any contents are taken as collateral for a loan. Also note that flood insurance is required depending on whether those contents secure the loan, regardless of whether the security interest is perfected.

Regulators, FDIC in particular, has indicated that the contents and building will be considered to have a sufficient amount of flood insurance coverage for regulatory purposes so long as some reasonable amount of insurance is allocated to each category.