Rate Explanation Guide

FEMA’s new rating methodology, Risk Rating 2.0: Equity in Action, considers specific 

characteristics of a building – the Where, How, and What – to provide a more modern, 

individualized, and equitable flood insurance rate. Understanding these characteristics helps 

to identify the building’s unique flood risk and associated premium.

WHERE It Is Built (Property Address)

FEMA uses the building’s property address to determine flood risk 

for the property. The property address is used to determine:

• A building’s distance to flooding sources, including the 

distance to the coast, ocean, rivers, and Great Lakes.

• The ground elevation where the building is located relative to 

the elevation of the surrounding area and the elevation of nearby flooding 

sources. 

• Other characteristics such as the community where the building 

is located and how that relates to the Community Rating System discount or 

whether the building is on a barrier island. 

HOW It Is Built (Building Characteristics) 

Knowing the physical characteristics of a building provides a deeper understanding of the building’s individual 

flood risk and how it may impact premium. Relevant variables include:

Building Occupancy 

The type (and use) of the building being 

insured sets available coverage limits 

and determines what is covered as 

indicated in the policy form.

Foundation Type 

The foundation type provides important 

insight as to where the flood risk is likely 

to begin. For instance, risk varies based 

on whether a building’s foundation is 

underground, at ground, or above ground.

First Floor Height 

Buildings whose first floor is higher off 

the ground have lower flood risk.

Number of Floors 

Buildings with more floors spread their 

risk over a higher area. 

Unit Location

Individual units on higher floors have 

lower flood risk than units on lower 

floors.

Construction Type

Masonry walls perform better in 

different flooding events than wood 

frame walls.

Flood Openings 

Flood openings can lower a building’s 

flood risk as they allow floodwaters to 

flow through a building’s enclosure 

or crawlspace.

Machinery & 

Equipment

Elevating above the first floor lowers 

the risk of damage to machinery & 

equipment covered in the policy.

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Rate Explanation Guide

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WHAT Is Built and Covered 

(Replacement Cost and Coverage)

The building’s replacement cost value, the amount of coverage requested, and the deductible choices 

influence the insurance premium. 

Building Replacement Cost Value*

Buildings with higher costs to repair generally result 

in higher losses, resulting in higher premiums.

Building and Contents Coverage 

Policies with higher coverage limits have higher 

potential loss costs, which lead to higher 

premiums. Building coverage and contents 

coverage amounts are selected separately.

Building and Contents Deductible

Policyholders who choose higher deductibles are assuming more of the risk during a flood event, which 

can result in a lower overall premium. Choosing a higher deductible means policyholders will need to 

cover more of the cost to rebuild out of pocket.

* The Building Replacement Cost Value used for rating does not affect the replacement cost value determined at time of loss.

Learn more at fema.gov/flood-insurance/risk-rating