When you add several layers to an issue it starts to become complicated and complex. This is exactly why many people do not understand or feel confused about flood insurance.
The National Flood Insurance Program has many moving parts and their bulletins can be confusing. I mean back in 2018 when they issued a ruling on the FEMA cancellation reason 26 duplicate policy other than NFIP they contradicted themselves just two paragraphs a part.
Insurance agents and underwriters debated this particular issue for 6 months before a clarification bulletin issue was released.
This same complexity and confusion is what sometimes leads to misinformation when it comes to policy assumptions and policy transfers.
In this episode of The Flood Insurance Guru podcast we discuss flood insurance policy assumptions and policy transfers. Before we can understand how they are different we need to understand what each one means.
So let's start with what exactly is a policy assumption?
A policy assumption is when a flood insurance policy is assigned from one insured to another insured. This is a common practice when selling a property.
So why would someone do a policy assumption instead of a new policy?
Well there are some clear benefits
- Locking in the current rate
- Locking in a flood zone that may no longer be available
- No funds needed to start the policy
One of the biggest benefits of doing a policy assumption is you lock in the current rate. This could be very beneficial compared to setting up a new policy. One reason is the second benefit which might be the flood zone is no longer available.
What exactly does that mean?
Well when the flood maps change the old flood zone goes away. For example I bought a home in a high risk flood zone about 10 years ago. When I was getting flood insurance quotes I was told $3000 a year. However I was able to prove the home was built in compliance. As a result the property was grandfathered in the flood zone X was $350 a year. As you can see getting a new policy would have cost a lot more money.
So when I sold the home I did a policy assumption to the new owner.
What about no funds needed to continue the policy?
Flood insurance is paid in full so when I did this policy assumption I could walk away from any funds that would be due to me when cancelling the policy. As a result the new property owner did not have to make any payments on the flood insurance until renewal.
So we have talked about policy assumptions a little bit.
What about a flood insurance policy transfer?
A policy transfer is when a policy is transferred from one company to another company. These are called write your own carriers sometimes.
So why would someone do a policy transfer?
Sometimes your agent might have gone out of business and the new agent does not work with that particular carrier. It might be that you prefer to work with a particular write your own carrier.
One of the big reasons that people get confused on this issue honestly is probably because we get lazy about using the right terms.
Let's think about it you have probably heard the term policy transfer alot more than policy assumption. So many people think it's either or situation when it's not. In fact many times when someone does a policy assumption they might do a policy transfer as well.
So whats the big difference is these two terms?
Lets keep it simple
Policy assumption = insured
Policy transfer = company
So that's the complexity of flood insurance policy assumptions and policy transfers.