Flood Insurance Policy Assumptions: A Property Owner's Greatest Tool

When it comes to selling or buying a house, you have to consider that a lot of insurance will go into it. Most property owners might find this as a big hurdle since this definitely will ask you to dish out a lot amount of money just to get the right coverages in the right places.

Today, we answer one of your flood insurance concerns and also help solve an age-old problem that homeowners across the United States face when it comes to closing a house deal or selling your home: flood insurance policy assumption.

What's Up Alabama?

We've covered in a previous episode how there's a big movement when it comes to the most populous city in the state of Alabama. A lot of people have been moving into Huntsville and Birmingham is equally have a significant number move out of the city as well.

Now, this comes with selling a house or buying a house however you also have to secure insurance policies to protect the home from both flood damage and other damages like fire, water, or mold damage. This won't be an easy task since we've seen how much change is happening in the flood zone designation for these major cities in Alabama.

It's not impossible that you might get a house that sits in a high-risk flood zone or special flood hazard area (SFHA). When it comes to floods, there's a lot of things that go into preparing for them and making sure that you get the right flood insurance policy for your property.

Policy Assumption

It's important to remind everyone that when it comes to your policy from the federal government, or the federal flood insurance through the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP), you can do a policy assumption or policy transfer. These two are interchangeable since it's only a matter of your position when it comes to selling or buying a house.

This policy assumption or transfer in your flood insurance can really help you out if you're mapped into high-risk zones in FEMA's flood map or the flood insurance rate map (FIRM). Now, when it comes to properties or houses in that high-risk flood zones, you have to keep in mind that your mortgage lender will be very keen on requiring you to carry a policy for that property.

This mandatory flood insurance purchase can cause a hefty price since we're talking about a lot of flood insurance requirements to be secured before you can get a flood policy for the property. So, why is a policy assumption a great tool and weapon for the property owners?

Tool Against Flood Loss

Before we jump into answering why this can be your best weapon when buying or selling a home, let's further discuss the aforementioned flood insurance requirements. It's important to note, however, that policy assumptions are only available in Alabama for flood insurance policies that are coming from FEMA and the National Flood Insurance Program (NFIP).

Now, when it comes to buying flood insurance from FEMA or any insurance companies, for that matter, you have to meet certain underwriting requirements. These requirements may involve documentation through photos of the house you're trying to get insured and an elevation certificate to determine the distance of the house's lowest floor compared to the base flood elevation levels. Generally, you can expect your insurance provider to submit this before you can even send a payment for the policy. 

When it comes to these requirements, this can be very expensive, and getting a new flood insurance policy for the new house you bought will surely have more expensive premiums compared to what it had before. This is because the new policy is most likely to take in the new flood zone according to the latest FIRM or flood map update.

It's a well-known fact that moving into a new home can really cost you a lot of money which is why it's important to check if the previous owner of the house you're trying to buy has a FEMA flood policy in place. This way, you can simply assume the policy and continue with it.

A policy assumption or policy transfer can help you keep the current flood premium and lower-risk flood zone which in turn will also help you avoid those expensive premiums within that period. You also won't have to pay for the flood insurance premium that the policy also has – this can be discussed between you and the seller.

This way, you can make sure that you have proper protection for the new house you're buying without emptying your wallet or bank account. The policy contract will be transferred to you and you'll be the new policyholder in the eyes of FEMA once the reinsurance or renewal day kicks in.

Coverages & More

Now, it's important to note that any and all coverages will be adopted by the buyer. In this case, if you're the one buying the house, you're going to fully accept whatever's written in the policy for that property. This means that flood insurance coverage for the building or dwelling as well as personal property will stay the same.

You can start to increase these coverages if needed so long that it follows the guidelines of the National Flood Insurance Program however if you're looking to decrease the coverage, you will have to wait it out until the renewal date kicks in.

If you're doing a FEMA policy transfer or assumption, you'll get coverage for flood damage to your dwelling property that maxes out at $250,000 and $100,000 if we're talking about personal property or contents coverage.

It's important to note however that if you're the seller of the house, you will not get a refund for the payment for the policy. This is why we mentioned that you need to discuss with the buyer the terms outside of FEMA and the NFIP.

As we've mentioned in our previous episodes, nowadays the biggest flood risk that we're facing isn't what the floodwaters drop on our doors, but the concern of flood coverage or the lack thereof.

It's important to keep in mind that a lot of people struggle to get back up from a flood event since they didn't have the right coverage or any coverage at all for the damages. So keep your guard up and make sure that you get the best out of your policy.

If you have questions on how to process a policy assumption, where to get your flood policy for your new home in Alabama, what your flood insurance options are in Alabama, or anything about floods, reach out to us.

Remember, we have an educational background in flood mitigation and we want to help you understand flood risks, your flood insurance, and mitigating your property long-term.