Flood Insurance Coverage for Residence with Attached Garage

Issue/Inquiry

The Bank is making a $480,000 loan secured by a two-story residence and a detached two-story garage with upstairs rooms that are being used for living purposes. The insurable cost of the residence is $350,000, while that of the garage is $225,000, for an aggregate insurable value of $575,000. The residence and garage are connected by a roof. What is the appropriate amount of flood insurance coverage? Would separate flood insurance policies be necessary for each structure?

Response Summary

The garage will be covered under the flood insurance policy covering the residence, since it is connected to or attached to the residence. The appropriate amount of flood insurance coverage will be $250,000, which is the lesser of the loan amount, insurable value of the structures, and maximum NFIP flood insurance coverage for one-to-four family residential property.

Response Detail

Under the National Flood Insurance Program (“NFIP”), a single-building structure subject to the single-building limits of coverage must be:

• Separated from other buildings by intervening clear space
• Separated into divisions by solid, vertical, load-bearing walls

If an addition or extension to a building is connected to the building by a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof, it is covered by the flood insurance policy covering the building, though it may be insured separately at the option of the insured. NFIP Flood Insurance Manual, GR-5 (effective April 1, 2017 and October 1, 2017); Standard Flood Insurance Policy.

In this case, the appraiser has confirmed that the garage is attached to the residence by a roof. For that reason, the garage will be covered under the flood insurance policy for the residence, and a separate policy will not be necessary. The Bank or borrower can obtain separate coverage for the garage, but this is optional.

The appropriate amount of flood insurance will, therefore, be the lesser of the following:

• $480,000 (loan amount)
• $575,000 (insurable value of structures)
• $250,000 (NFIP coverage limit)

Since $250,000 is the lesser of the loan amount, insurable value, or NFIP coverage limit for one-to-four family property, this will be the minimum amount of flood insurance required under the Flood Rules.

It should be noted that a detached garage can also be insured as an accessory structure under the flood insurance policy covering the residence, but only if it represents less than 10 percent of the value of the property and only if it is not being used for human habitation.

This entry was posted on Monday, October 2nd, 2017 at 6:00 am.