A single-family, non-condominium dwelling is in zone AE in a participating NFIP community. Its flood-insurance insurable value is $310,000 and the outstanding loan balance is $268,000. Federal mandatory-purchase requirements apply with no exemption. What is the statutory minimum building coverage, apart from any stricter lender or loan-program requirement?
Correct Answer
C) Flood insurance is required; the minimum building coverage is $250,000
C. The minimum in this scenario is $250,000. Compare the $268,000 balance, $250,000 NFIP building limit and $310,000 insurable value. The smallest amount is $250,000; the facts establish that mandatory purchase applies. Scope and exceptions: Lenders or specific loan programs may require more. Other building types have different limits. A homeowners-policy amount is not automatically the flood insurable value. Source: Mandatory purchase amount for one- to four-family non-condominium structures — https://www.helpwithmybank.gov/help-topics/mortgages-home-equity/flood-insurance/flood-how-much.html
Why This Is the Correct Answer
C. The minimum in this scenario is $250,000. Compare the $268,000 balance, $250,000 NFIP building limit and $310,000 insurable value. The smallest amount is $250,000; the facts establish that mandatory purchase applies. Scope and exceptions: Lenders or specific loan programs may require more. Other building types have different limits. A homeowners-policy amount is not automatically the flood insurable value.
Why the Other Options Are Wrong
Option A: Flood insurance is required, and must cover the full $310,000 value
Full insurable value is not the statutory minimum here.
Option B: Flood insurance is required only where the property has flooded before
Prior flooding is not a prerequisite under these facts.
Option D: Flood insurance is optional, because zone AE is a moderate risk area
It contradicts the mandatory-purchase condition.
Exam Tip
Separate the statutory minimum from the coverage a lender may require.
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