In this video, let's do a little storytime on our experience here at Flood Insurance Guru on policy assumption and answer the question: Is doing a policy transfer really the best thing to do?
Now, we just got a call from a realtor who's looking to do a policy transfer and they were concerned because the flood insurance premium rate was somewhat high. The existing homeowner's flood insurance policy was through the National Flood Insurance Program (NFIP). Now, the realtor mentioned the price for the flood insurance rate of this property owner, and the National Flood Insurance Program (NFIP) had them locked in at around $3000 for the property.
Side note, normally we would say that this flood insurance rate is pretty high. However, for this property, it's not really surprising since the structure and property have had a lot of flooding in recent years. This means that the building sustained a lot of flood damage from the flooding in previous years, and might fall under as repetitive loss building. Other than the mortgage loan or mortgage lender demanding a mandatory purchase requirement for the property, this can really impact the flood insurance policy since there's a high flood risk for that area. In fact, the $3000 price was actually pretty low in the federal flood insurance market considering the risk of flooding in this area.
For context, the federal government's flood insurance coverage — property and contents coverage — is the same and this is regardless of the building is in a low-risk area or a high-risk area. However, when it comes to premiums and rates, there will be significant differences. This is the same even if you're getting your policy from private flood insurance companies. It's important to mention that private insurance companies have different means to determine a property's flood risks, so the average cost of flood insurance policy from private insurance companies is significantly lower as well compared to what National Flood Insurance Program (NFIP) will ask.
Another contributor to this high National Flood Insurance Program (NFIP) premium rate is due to the Federal Emergency Management Agency (FEMA) adjusting the base flood elevation several feet on this building's area. So we always want to double-check this by looking at the lowest floor and base floor compared to the base flood elevation. Unfortunately, in this realtor's case, a policy transfer isn't the best option because the new homebuyer is doing a conventional loan.
At the time of writing, conventional loans can only carry a policy that's from private insurance companies and not the National Flood Insurance Program (NFIP). Now, we were able to find another option for the client right around $1200 a year. As you can see, in this situation, the National Flood Insurance Program (NFIP) policy transfer isn't really the best option since the client will have to pay an extra $1800 per year.
This is the reason why you should look at every available option and limit when you're buying a house in a flood-prone area. Although a policy transfer is something we really recommend since this can really help the buyer and the property itself when it comes to flood insurance costs, it isn't always the best option.
So if you have questions on how to do a policy transfer, private policy, how high-risk flood zone impacts your NFIP flood insurance, coverage limits on your policy, flood map updates, flood coverage, or anything about flood. Please reach out to us and remember, we have an educational background in flood mitigation. We'd love to help you with your preparation, improvement, and protection of your property against flood so you can preserve its value long term.