Flood insurance was not available in the US until 1968, when Congress created the National Flood Insurance Program (NFIP) to make this coverage available to eligible communities through federal grants. The program is administered by the Federal Emergency Management Agency (FEMA). Any building on a permanent site, above ground, with walls and a roof, is eligible for coverage.
If your property is located in a flood zone, it is subject to the standard flood policy premium rates, which are higher than the prime premium rates.
To buy flood insurance, you don’t have to be in a flood zone. If you are not in the flood zone and want to insure your property in the event of a flood, you will be charged a preferential rate. This type of coverage is very affordable; the premium is a couple hundred dollars a year.
NFIP policies can be sold by private insurance companies through the FIA’s “Write Your Own” program. Under this system, the FIA sets fees, eligibility requirements and coverage limits. The participating company collects the premiums and pays the losses with these premiums. If the insurance company charges more in premiums than it pays in losses, the excess must be returned to the government. Most of the time, insurance companies that sell flood insurance also sell homeowners, residential, and other policies.
For flood coverage to become effective, an application for the NFIP must be completed and accompanied by full payment of the policy’s gross premium. Payment cannot be split into partial payments and no payment plan is available.
After payment is received, there is a thirty-day waiting period for the policy to take effect. The waiting period is waived only if you are buying a home and need to present all supporting proof of insurance at closing. If your new home is not in a flood zone and your mortgage does not require flood insurance, don’t expect it to be paid from your escrow account. If flood insurance is required, you can request a payment to be released from your escrow account, just like your hazard insurance.
Let’s say you own a house and you have a homeowners policy and a flood insurance policy. If you decide to sell your home, you can do it two different ways with flood coverage.
You can cancel the policy, provide HUD statements and receive a refund, or you can assign the flood coverage to the new home owner. Flood insurance can be assigned to the other insured with title to the property. Some insurance companies require the prior insured’s written consent and some do not.
