How FEMA’s 50% Rule Works: What It Means for Insurance Claims

FEMA’s 50% rule limits improvements to a structure to 50% of its market value unless the structure is improved to comply with current flood regulations.

FEMA’s 50% rule could affect your flood insurance claim. Today, we’re explaining everything you need to know about FEMA’s 50% rule and how it works.

What is FEMA’s 50% Rule?

FEMA’s 50% rule applies to homeowners making a flood insurance claim under the National Flood Insurance Program.

Here’s how the 50% rule works:

• FEMA’s National Flood Insurance Program (NFIP) covers homes in flood zones across the United States – including homes that private insurance companies would not normally cover because of excess flood risk.
• If your home is damaged or destroyed by flooding, then FEMA’s 50% rule restricts an insurance claim to 50% of the value of the home unless the entire structure is brought into compliance with current flood regulations.
• To comply with current flood regulations and avoid the 50% rule, a homeowner could elevate the structure, use flood-resistant materials, ensure proper flood venting, or install other flood mitigation strategies on the home.
• If the homeowner brings the home to full compliance with current flood regulations, then FEMA’s 50% rule no longer applies.
• If the homeowner does not bring the home to full compliance with current flood regulations, then FEMA restricts payout to 50% of the market value of the home.

Let’s say you have a home in coastal North Carolina worth $500,000. The home is in a flood zone and you have flood insurance through FEMA’s National Flood Insurance Program. A storm surge causes significant damage to your property. It will cost $350,000 to repair this damage. FEMA, however, only provides a maximum of $250,000 of coverage (50% of the market value of your home) until you elevate your home or implement other flood mitigation strategies.

When Does the 50% Rule Apply?

FEMA’s 50% rule applies to homes covered by the National Flood Insurance Program that are not in full compliance with current flood regulations.

The 50% rule can apply to existing structures, new homes, and other buildings on your property:

• The 50% rule applies to homes covered under FEMA’s National Flood Insurance Program. If you have flood insurance for your property, then that flood insurance generally comes from FEMA’s NFIP (unless you worked with a private, specialty insurer).
• Typically, homeowners in Special Flood Hazard Areas (SFHA) according to the Flood Insurance Rate Map (FIRM) must buy insurance through FEMA’s NFIP.
• The rule applies to new and existing structures that do not comply with current NFIP flood regulations.
• The rule no longer applies if you substantially improve your home to meet NFIP flood regulations. If you have elevated your home, flood-proofed it, or installed flood-resistant construction materials, for example, then your home may not be subject to the 50% rule.

How to Avoid the 50% Rule

The best way to avoid the 50% rule is to improve your home to comply with the latest NFIP flood regulations.

Some of the ways to do that include:

• Elevate the Structure: If your home is below base flood elevation (BFE) and under NFIP insurance, then it’s likely affected by the 50% rule. Elevate the structure to avoid being subject to the 50% rule. Experts recommend elevating your structure to or above base flood elevation (most building codes require at least one foot above BFE). This distance is called “freeboard.” Your home must be above BFE + freeboard. If base flood elevation is 5 feet, for example, and freeboard is 1 foot, then the base of your home needs to be above 6 feet.
• Eliminate Basements or Below-Grade Areas: You may need to eliminate basements or fill in below-grade areas. Typically, FEMA requires homeowners to eliminate lower level residential areas completely to avoid the 50% rule. Commercial properties, however, could simply floodproof below-grade areas to avoid the 50% rule.
• Limit Use of Below-Grade Areas to Parking, Storage, & Home Access: After raising your home and eliminating basements and below-grade areas, you must only use below-grade areas for certain things to maintain compliance and avoid the 50% rule. FEMA requires you to use these areas for parking, storage, and building access, for example.
• Use Flood-Resistant Construction Materials: FEMA requires you to use flood-resistant construction materials for any below-grade areas – like the steps to access your elevated home and the walls of your below-grade garage.
• Relocate or Elevate Utility & Building Service Equipment: Maintaining flood compliance may require you to relocate or elevate service equipment – like air conditioners and heat pumps. Typically, homeowners raise these units to the same elevation as the dwelling itself.
• Other Flood Mitigation Strategies: FEMA assesses the 50% rule on a case by case basis. Depending on your property, you could be required to implement other flood mitigation strategies. You may need to anchor structures, for example, install barriers, floodproof below-grade areas, install breakaway walls, or create flood openings, for example, to comply with local flood regulations.

Flood Insurance Could Cover Compliance Costs

Installing all of these flood mitigation measures can cost money.

Fortunately, your flood insurance could cover these costs.

If your home is not up to current flood codes, and you experience a loss exceeding 50% of your property value, then FEMA could cover the cost, up to $30,000, of bringing your property to compliance.

Here’s how it works:

• A standard NFIP flood insurance policy includes $30,000 of coverage for Increased Cost of Compliance (ICC).
• ICC coverage covers the cost of bringing your property into full compliance with modern building codes – including flood mitigation strategies.
• You can only access your NFIP’s ICC coverage, however, if your structure has damage exceeding a 50% threshold.

Check your flood insurance policy to determine if your flood mitigation improvements could be covered by insurance.

Contact ClaimsMate for Flood Insurance Help

Flood insurance can be complicated. A single flood insurance claim could change your financial future.

ClaimsMate wants to help you get the payout you deserve.

Contact ClaimsMate today for a no-cost consultation with a public adjuster. Discover the best path forward for your claim while maximizing payout.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.