In this article, we want to talk about escrow billing nightmares from both the National Flood Insurance Program (NFIP) and the Private Flood Insurance Program. We discuss what you need to know about escrow billing flood insurance. We discuss how flood insurance claims might be covered if payment has not been received.
We want to focus on everything that you should know to ask as a mortgage lender, an insurance agent, and as a property owner.
You could also listen to our podcast below while you read.
As you know by now, even with the Risk Rating 2.0 update, you will still find about a maximum of $250,000 for building coverage and $100,000 in contents coverage for flood loss with the NFIP and FEMA. For commercial properties, the building coverage maxes out at $500,000.
Paying with Mortgage
It's important to point out a few things you need to know when getting your federal flood policy signed especially if you're paying it out of a mortgage loan or escrow payment.
One of these things is that you won't really be getting a declarations page or the actual policy with the National Flood Insurance Program right away. As a result, the signed application can serve as your proof of coverage for up to 29 days.
What does this mean?
Simply put, your mortgage company has 29 days to make a payment for your flood policy's insurance premium before the 30-day wait period kicks in. Think of this as a form of grace period for your mortgage company to pay your flood insurance premiums.
REMINDER: The 29 days will only be for the payment of the policy. There will still be a 30-day waiting period for the actual flood insurance policy to be available.
What if you missed this grace period for your mortgage company to pay your flood insurance?
Well, because of the NFIP's strict guidelines, coverage would not start for 30 days. You might get set back when it comes to both your building and personal property coverage if this payment wasn't made in time because once payment is received after the 30th day is when the 30-day waiting period starts.
Paying Directly as an Agent or Insured
Now, when paying as an insurance agent or maybe you want to pay it out of your own pocket as a property owner, you will only get a 10-day period to pay your policy. The same thing goes, if you miss this 10-day period, your coverage will not start for 30 days.
What If a Claim Occurs?
Let's keep it simple, so long as you made your payment before a claim occurs, you will get the respective coverage written in your flood insurance policy.
Equally, this means that if your mortgage company missed the 29-day payment period, then you will not get any of the coverage you have with your policy until the payment is made.
It is only AFTER payment is made will you be able to get coverage for your flood insurance claims.
Everything Private Flood
So you might be wondering, what about the private flood insurance carriers? Where do they stand on this topic?
Well, it's important to note that just like their flood insurance coverage, payment terms when it comes to escrow billing or escrow account may vary from one private insurance company to another.
This may mean that you will be able to get only 10 days to make a payment up to 15 days. This is regardless if you're paying through a mortgage, an insurance agent, or out of your pocket.
Again, this really depends on the private insurance carrier that you applied with, so it's important to really know the guidelines that your private flood carrier has when it comes to these types of concerns.
What if a Claim Occurs?
Private flood insurance has different standards and guidelines when it comes to payment and flood policies. So you might be shocked to know that some private flood insurance companies will outright reject or deny a claim if it's made before payment is made.
Yes, that means that you won't get any of the coverage with your policy if there was no payment before the flood claim was filed. This is why we highly recommend that you pay your flood insurance premium upfront, as hard as it may be, to avoid this type of situation.
As an insurance agent, it's important to know which carrier has these guidelines or simply know the guidelines of the carrier that your client is going for. This really helps you, as an agent, avoid E&O Claims since you get to inform your client everything about their flood insurance carrier.
In our experience, we've had many clients file flood claims two weeks and even two days after closing. Thankfully, they get coverage for the flood loss because they were able to get the payment made before these claims.
If you want to know more about the differences between the NFIP and Private Flood Insurance, watch our video below:
So if you need assistance with these payment guidelines for your flood insurance, so you can make sure that you have coverage on your property, understand flood risks, or anything about flood insurance, click below to reach us.
We want to simplify flood insurance, so you can get a better understanding of flood risk, flood insurance, and mitigating your property long-term through education.