Flood insurance was not available up until 1968 in the USA, when Congress created the National Flood Insurance Program (NFIP) to make this coverage available to the eligible communities through federal subsidization. The program is managed by the Federal Emergency Management Agency (FEMA). Any building on a permanent site, above the ground, walled and roofed, is eligible for the coverage.
If your property is located in a flood zone, it is subject to standard flood policy premium rates, which are higher than preferred rate premiums.
To purchase flood insurance, you don’t have to be in the flood zone. If you are not in the flood zone, and you want to insure your property just in case of a flood, you will be charged a preferred rate. This type of coverage is very affordable; the premium is a couple of hundred dollars a year.
NFIP policies may be sold by private insurance companies through the FIA’s “Write Your Own” program. Under this system, the FIA sets rates, eligibility requirements, and coverage limitations. The participating company collects the premiums and pays for the losses out of these premiums. If the insurance company collects more in premiums than it pays out in losses, the excess must be returned to the government. Most of the time, the insurance companies that sell flood insurance also sell homeowner’s, dwelling, and other policies.
For the flood coverage to go into effect, an application for the NFIP must be completed and accompanied by the gross policy premium payment in full. Payment cannot be divided into partial payments, and no payment plan is available.
After the payment is received, there is a thirty-day waiting period for the policy to go into effect. The waiting period is waved only if you are buying a house and need to submit all insurance supporting proof at the time of a closing. If your new home is not in a flood zone and your mortgage does not require flood insurance, don’t expect them to pay for it from your escrow account. If flood insurance is required, you can request a payment to be released from your escrow account, same as your hazard insurance.
Let’s say you have a house, and you have a homeowner’s policy and a flood insurance policy. If you decide to sell the house, you can do it in two different ways with the flood coverage.
You can cancel the policy, providing HUD statements and receiving a refund, or you can assign flood coverage to the new owner of the house. The flood insurance can be assigned to the other insured with the title of the property. Some insurance companies request written consent from the previous insured, and some don’t.