The amount of Insurance proceeds (the greater of actual or anticipated) is deducted from the eligible costs. By taking the reduction, FEMA eliminates the potential for duplication of benefits for the same loss. This applies to both general property insurance and flood insurance.
For general property insurance, FEMA will use the Applicant's insurance adjustment, if available, to reduce the eligible amount of funding by the amount of the actual insurance proceeds provided. However, if this amount is unknown, a FEMA insurance Specialist will review the insurance policy and damaged facility to determine the anticipated insurance proceeds, which are then deducted from the original eligible amount. As a condition of receiving Federal assistance, the Applicant must obtain and maintain insurance sufficient to protect against future loss to such property from the same peril for the life of the project.
For flood damage, the reduction of eligible costs is dependent on whether or not the damage is located within the Special Flood Hazard Area (SFHA). The SFHA is a comprehensive term established by the National Flood Insurance Program (NFIP) that includes areas of the 100-year floodplain, a floodway or a coastal high hazard area. If the damage occurs outside of the designated SFHA, the reduction is the same as described for general property insurance. If the damage is within the SFHA, and the Applicant has flood insurance but no NFIP coverage, then FEMA will compare the Applicant's flood insurance adjustment to what they could have obtained through NFIP coverage. Based on the two adjustments, FEMA will use the highest adjustment to deduct from the eligible costs.
If the insurance is not maintained, the facility will receive no future assistance.
If the eligible damage is less than $5,000, the purchase of insurance is not required.