In today's FEMA Cancellation Reason blog, we want to talk about payments and how they can lead to your flood insurance policy actually getting canceled. Sheesh!
We've covered much ground when it comes to the changes that are looking to update FEMA's structure when it comes to policy cancellations. We've talked about the first five categories which are canceling your insurance due to no insurable interests, establishing common expiration dates, duplicate coverage, being ineligible for flood insurance coverage, and policy is no longer required by the lender. These are Categories #1 through Category #5 respectively.
Let's talk about when your payment encounters a wall and also when the payment is fraud involved.
Category #6 - Invalid Payment and Fraud
When it comes to the legacy program of the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP) or simply NFIP 1.0, there's a separation between the cancellation of a policy due to invalid payment and fraud. You can actually see this on how they're numbered — exactly 17 numbers apart.
Reason Code #06 — When it comes to invalid payments, this is mostly concerned with payments for your flood insurance policy not meeting the expected amount. Maybe there's been confusion between you and your agent that you sent FEMA a lesser amount of money than expected.
Sometimes, when renewing a policy, you might think that you will have the same amount as before, so you had the payment sent out when it's actually less than your updated premium. This can also happen, theoretically speaking, when your lender didn't provide them enough payment to cover all the insurance costs.
The thing about flood insurance payments (or any insurance payment to be exact) is that they have to match the expected amount for the total premiums. Yes, down to the taxes and cents, you're expected to provide your insurer with the proper amount of payment to proceed with your policy.
When this happens, your policy will be canceled by the insurer or FEMA due to Reason Code #06.
Reason Code #23 — Now this is something that you should really avoid with all your power. However, here's an example in the name of knowledge, there are some situations where the insured will commit fraud by faking their payment for their FEMA policy.
We really don't need to expand on this since fraud is fraud even when it comes to flood insurance payments. Just keep in mind that when FEMA detected fraud on the flood policy's payment, there will be no refund and the policy will be canceled.
When it comes to Risk Rating 2.0 or NFIP 2.0, these cancellation details will be updated. We'll no longer see Reason Codes since they will be changed to Cancellation Categories.
Any cancellation of a policy due to invalid payment and/or fraud, which are Reason Codes #6 and #23 respectively, will be combined under Category #5.
It's important to note that flood insurance payment is a crucial factor in your purchase. Having a delayed payment might cause your effectivity date to move and your coverage to lapse. Having an incorrect payment will cause your policy to be canceled. Both of which can have a big impact especially now that we can't really predict when floods can happen.
If you want to get help understanding payment terms on flood insurance, not only with FEMA and the NFIP but also with the private insurance carriers, reach out to us by clicking the links below.
If you want to know how flood insurance work, and how your FEMA policy can be canceled, where to buy flood insurance, understand your risk of flooding, or anything related to floods, click below to access our Flood Learning Center.
You can also click my picture below to call us for your flood insurance concerns.
Remember, we have an educational background in flood mitigation which lets us help you understand your flood insurance, how it can be managed, flood risks, and mitigating your property to preserve its value long-term.