What does “policy assumption” mean under the NFIP?

A policy assumption under NFIP means taking over (assuming) the existing flood insurance policy from the seller when you buy a property, rather than getting a new policy.

Why might a bank deny a policy assumption?

A bank or mortgage lender may deny a policy assumption for reasons like concerns about the property's location, flood risk, required coverage, or whether the policy meets current underwriting standards.

How can I find out if my NFIP policy assumption is eligible?

You should review your current policy, consult with your insurance agent, and contact the lender to verify their requirements. Checking NFIP policy documents and flood zone maps is also helpful.

What are my options if assumption is denied?

If assumption is denied, you may need to purchase a new NFIP policy, consider private flood insurance, or address any lender requirements to make assumption possible (like adjusting coverage or making property improvements).

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Why Would a Bank Deny an NFIP Flood Policy Assumption?

February 13th, 2022

3 min read

By Chris Greene

National Flood Insurance Program Policy Assumption Denied By Bank

Are you trying to transfer a flood insurance policy to a buyer, only to be told the bank won’t accept it?
Worried that a denied assumption could delay or even cancel your real estate deal?

In this article, you’ll learn why banks and lenders reject National Flood Insurance Program (NFIP) policy assumptions—and more importantly, how to avoid that happening in the first place.

We’ll walk you through:

What a policy assumption is (and why people try it)
The top reasons banks deny assumptions
A real-world example of a denied transfer
Five proactive steps to avoid denial
What to do if the sale doesn’t go through

What Is a Flood Insurance Policy Assumption?

A policy assumption is the transfer of an existing NFIP flood insurance policy from a seller to a buyer. Instead of starting a new policy from scratch, the buyer assumes the seller’s existing coverage—often saving money and time.

But there’s a catch: the buyer’s lender has to approve the policy. And that’s where things can fall apart.

Why Banks Deny Flood Insurance Assumptions

Lenders will reject a policy assumption if it doesn’t meet the loan requirements. Here are the most common reasons:

Coverage limits are too low for the lender’s standards
Policy terms or effective dates don’t align with the loan closing
Administrative delays or documentation gaps during the assumption process

Real-World Example: $75K vs. $250K

Recently, we worked with a seller whose policy had only $75,000 in coverage. The buyer’s lender required $250,000. Because of that gap, the assumption was denied, and the buyer had to purchase a brand-new policy. The delay nearly derailed the sale entirely.

5 Steps to Avoid a Denied Assumption

If you’re selling a property and want the buyer to assume your NFIP policy, follow these steps:

1. Verify the Buyer’s Required Coverage Early

Ask the buyer—or their lender—how much flood insurance they require before initiating anything else.

2. Contact Your Agent at Least 30 Days Before Closing

If you need to increase coverage to meet lender demands, notify your insurance agent right away. Waiting too long can lead to delays.

3. Plan for FEMA’s 30-Day Waiting Period

In most cases, the NFIP imposes a 30-day delay on policy changes like coverage increases. Starting early ensures the new coverage is active in time for closing.

“Why 30 days? Because in many situations FEMA puts a delay of 30 days on policy changes like increasing coverages on your policy.”

4. Prepare the Documentation the Lender Needs

You’ll need to provide proof of updated coverage and the official policy endorsement—so coordinate these with your agent in advance.

5. Double-Check the Effective Dates

Make sure the increased coverage is active before the assumption happens or the loan closes.

If the Sale Falls Through, Keep the Coverage

Don’t reduce your coverage just because the deal didn’t close. If you list the home again, the next buyer’s lender will likely have similar requirements. Keeping the updated limits in place helps you avoid last-minute scrambling next time.

Bonus Tips Before You Close

Review Your Flood Zone

Think the property’s flood zone is inaccurate? Consider requesting a flood zone review before closing. Visit challengeyourfloodzone.com to learn how to submit a zone change request.

Talk to the Lender Early

Ask the buyer’s lender exactly what they need for a successful assumption—both in terms of documents and timing.

Loop in Your Insurance Agent

Make sure your NFIP agent understands the timeline and the lender’s expectations so they can process changes correctly and quickly.

Summary: Avoid Surprises, Plan Ahead

Policy assumptions can be a great way to transfer flood insurance to a new owner—but only if the lender approves it. The most common reason for denial is insufficient coverage. The easiest way to avoid that?

Know the buyer’s required coverage
Contact your agent 30+ days in advance
Ensure all documents are complete and submitted on time

Next Steps

At the end of the day, denied assumptions usually come down to avoidable timing and communication issues. Now that you know how to prevent those pitfalls, your next step is to: