Is Flood Insurance Transferable to a New Owner?

Flood insurance is a specialized type of coverage designed to protect properties and their contents from financial losses caused by flooding events. Unlike standard homeowners insurance, which typically excludes flood-related damages, flood insurance provides an important safeguard, particularly for properties located in flood-prone areas. Transferability of flood insurance policies to a new owner depends significantly on the policy type. While National Flood Insurance Program (NFIP) policies are generally transferable, private flood insurance policies have different terms regarding transferability.

Transferring National Flood Insurance Program Policies

Most National Flood Insurance Program (NFIP) policies are transferable from a seller to a new buyer during a property transaction. NFIP policies are designed to cover the property itself, not just the individual policyholder. This approach helps ensure continuous flood coverage for the property, which is important for maintaining protection against flood risks.

The process of transferring an NFIP policy, often referred to as “policy assumption,” involves the seller notifying their insurance agent about the sale. The seller is required to sign an assignment endorsement on or before the closing date. This endorsement, along with documentation such as proof of sale and the new owner’s information, is submitted to the insurance company to complete the transfer.

When an NFIP policy is assumed, the new owner takes over the existing policy for the remainder of its term. While the premium for NFIP policies is paid in full for an entire year, the new owner does not have to pay a new premium until the renewal date, potentially reducing their closing costs. A key benefit of transferring an NFIP policy is that the buyer can often retain the lower, existing rate even if flood maps have been updated to show a higher risk. This can lead to substantial savings compared to purchasing a brand-new policy with current rates. Transferring the policy also eliminates the typical 30-day waiting period for new NFIP coverage to take effect, ensuring uninterrupted protection against flood risks for the property.

Considerations for Private Flood Insurance Policies

Private flood insurance policies operate differently from NFIP policies when it comes to transferability. These policies are contracts between the specific insurer and the policyholder, meaning they are not directly transferable to a new owner. When a property with private flood insurance is sold, the seller cancels their existing policy.

The new buyer is then responsible for securing a new flood insurance policy, either through a private insurer or the NFIP. While some private policies might have unique clauses that allow for assumption, these instances are uncommon and depend on the insurer’s specific terms. Policyholders should review their policy documents or consult with their insurance agent to understand any potential exceptions.

Private flood insurance policies offer more customizable coverage options and potentially higher limits than NFIP policies, which can be an advantage for some property owners. However, these policies may also have different underwriting and pricing structures that influence their transferability. Buyers will need to undergo a new underwriting process to determine their specific rates and coverage terms.

Actions for Property Buyers and Sellers

Sellers should contact their insurance agent to discuss the existing flood insurance policy. If the policy is an NFIP policy, sellers should inquire about the transferability process. If it is a private policy, sellers will need to understand the procedures for cancellation and any potential premium refunds. Sellers should provide relevant flood insurance policy information, such as the policy number and agent contact details, to prospective buyers.

Buyers should verify the flood risk and flood zone designation for any property they are considering purchasing. This can be done by utilizing FEMA’s Flood Map Service Center online, which provides details on flood zone classifications. Buyers should also engage in discussions about flood insurance options with their mortgage lender, real estate agent, and the seller to determine if an existing policy can be assumed or if a new one is necessary.

If assuming an existing NFIP policy, buyers will need to provide their new owner details and confirm that the coverage meets their needs and any lender requirements. If a new policy is required, whether private or NFIP, secure coverage well in advance of the closing date, as new policies have a waiting period before they become active. Buyers should carefully review the flood insurance policy for coverage limits, deductibles, and any exclusions to ensure it provides full protection for the property and its contents.