Flood insurance was not available until 1968 in the US, when Congress created the National Flood Insurance Program (NFIP) to make this coverage available to eligible communities through federal subsidies. 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 standard flood policy premium rates, which are higher than the preferred rates.
To buy flood insurance, you don’t have to be in the 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 establishes rates, eligibility requirements, and coverage limitations. The participating company collects the premiums and the countries for the losses of these premiums. If the insurance company collects 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, homeowners, and other policies.
For flood coverage to be effective, an application for the NFIP must be completed and accompanied by the total gross premium for the policy. The payment cannot be divided into partial payments and there is no payment plan available.
Once payment is received, there is a thirty-day waiting period for the policy to take effect. The waiting period is canceled only if you are buying a home and need to present all supporting evidence of insurance at the time of 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 out of your escrow account. If flood insurance is required, you can request that a payment be released from your escrow account, as well as your hazard insurance.
Let’s say you have a home and you have a homeowner’s 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 flood coverage to the new homeowner. Flood insurance can be assigned to the other insured with the title to the property. Some insurance companies require the prior insured’s written consent and others do not.