Will your flood insurance policy fully cover the cost to rebuild your home after a loss?
Or could a misunderstanding of the 80% replacement cost rule lead to unexpected out-of-pocket expenses?
This article explores how Increased Cost of Compliance (ICC) interacts with the National Flood Insurance Program’s (NFIP) 80% replacement cost rule—a distinction that affects how claims are calculated and paid.
Included in this discussion:
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What the 80% rule actually requires
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What ICC covers—and what it doesn’t
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How ICC is treated in replacement cost calculations
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Practical implications for ensuring accurate coverage
Understanding the NFIP 80% Replacement Cost Rule
Under NFIP guidelines, to receive full replacement cost value (RCV) for a covered flood loss, a home must be insured for at least 80% of its replacement cost or the NFIP maximum, whichever is less.
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The current maximum NFIP coverage for residential buildings is $250,000.
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Discussions have taken place about increasing this limit to $500,000 under Risk Rating 2.0, though this has not yet taken effect.
Coverage below the 80% threshold results in a claim being settled on an actual cash value (ACV) basis, which deducts for depreciation.
What ICC Coverage Is Designed to Do
Increased Cost of Compliance (ICC) coverage provides up to $30,000 to help meet local floodplain regulations after a flood loss.
Typical uses include:
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Elevating a home
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Floodproofing required components
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Demolishing or relocating a structure
This coverage is triggered when a property has experienced substantial damage and local ordinances mandate compliance upgrades. ICC is not designed to fund the restoration of the property to its pre-loss condition.
ICC and the 80% Rule: Are They Connected?
ICC is not included when calculating the 80% replacement cost requirement.
According to the NFIP Claims Manual, the replacement cost calculation is based solely on the cost to rebuild the structure—not on costs related to code compliance. ICC is treated as a distinct benefit separate from standard building coverage.
Why the Distinction Matters
Including ICC in the replacement cost calculation can result in underinsurance, even if the total insured amount appears to meet the 80% requirement.
Consequences of incorrect calculations may include:
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Receiving a lower actual cash value settlement
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Being unable to cover full rebuilding costs
Replacement cost applies strictly to physical rebuilding expenses—materials, labor, and any required upgrades to bring the structure up to code—not to the additional compliance costs ICC covers.
Practical Considerations for Property Owners
When assessing flood insurance coverage under the NFIP:
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The 80% rule should be evaluated using the replacement cost of the structure alone
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ICC coverage, if present, is considered separately and does not apply toward the replacement-cost threshold
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Declarations pages should clearly list ICC as a separate coverage with its own limits
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Private flood policies may offer ICC-like coverages with different treatment; each policy should be reviewed for clarity on how these amounts affect replacement cost requirements
Summary: Replacement Cost and ICC Are Separate Protections
ICC and replacement cost coverage serve different purposes under the NFIP. While both are triggered by flood damage, only one applies to the calculation that determines how claims are paid.
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Replacement cost determines the claim payout for rebuilding the structure
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ICC assists with compliance costs required by local ordinances
Maintaining clear separation between these two coverages ensures policyholders meet the 80% rule correctly and avoid claim reductions based on miscalculations.
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