Flood Insurance 101: Getting Started Selling Flood Insurance
Today, the National Flood Insurance Program (NFIP) protects more than 5 million policyholders across more than 22,000 communities. To do so, the NFIP partners with nearly 60 insurance companies to sell policies across the country.
Flood insurance frequently asked questions
Created by Congress in 1968, the NFIP is a federal program that aims to reduce the impact of flooding across the country. It does so by providing flood insurance to property owners who live in communities that adopt and enforce floodplain management standards.
The NFIP is designed to provide an insurance alternative to disaster assistance to meet the rising costs of repairing flood damage to homes, businesses, and belongings.
Flooding can happen anywhere, at any time. You should encourage your clients to purchase flood insurance to protect their properties from the financial losses that come with flooding, and helps to build trust with your clients.
A property does not have to be near water to flood. Between 2015 and 2019, more than 40% of all NFIP flood claims come from outside of the high-risk flood areas, known as the Special Flood Hazard Areas (SFHAs).
Floods can result from:
- Melting snow
- Drainage system backups
- Broken water mains
- Changes to land from new construction
It’s also important to let your client know that most homeowners insurance policies do not cover flood damage.
In the event of flood, federal disaster assistance offers very limited assistance with strict eligibility requirements. Additionally, most federal disaster assistance comes in the form of loans that recipients must repay—with interest. Your clients will never have to repay money received from a verified claim on their NFIP flood insurance policy.
Property owners and renters in a community that participates in the NFIP can purchase coverage, including:
- Owners of buildings under construction
- Business owners
- Condominium associations
- Owners of residential condominium units in participating communities
Those who are not eligible include:
- Coastal Barrier Resources System Areas (CBRS)
- Undeveloped coastal areas established for wildlife refuge, sanctuary, recreational, or natural resource conservation purposes
- Buildings below ground or entirely over water
Mortgage holders in high-risk areas
Per the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994, homes and businesses in high-risk flood areas (SFHAs) with mortgages from federally regulated, supervised, and insured lenders are required to have flood insurance. And if federally required, the insurance payment must be escrowed. While flood insurance is not federally required if your client lives in a moderate- to low-risk flood area, a lender may still require them to have insurance.
Lenders typically require only the amount of the loan (up to the NFIP maximum) which could be less than the value of the home. If this amount is chosen, your clients may be underinsured. Review their coverages carefully with them and have them sign a declination form if they want only what the lender requires.
Previous recipients of disaster assistance
Clients who live in a high-risk flood area and have received federal disaster assistance following a Presidential Disaster Declaration must maintain flood insurance to be considered for any future federal disaster aid.
The best time is now! A flood can happen anywhere, at any time—even outside of the high-risk flood areas.
There is typically a 30-day waiting period between submitting the policy application and the effective date. If clients wait until severe weather arrives, it is likely already too late.
Exceptions to the 30-day waiting period:
- If flood insurance is purchased in connection with making, increasing, extending or renewing your mortgage loan
- If additional insurance is selected as an option on your insurance policy renewal bill
- If a building is newly designated in the high-risk area (SFHA) and flood insurance is purchased within the 13-month period following a map revision
- **If a property is affected by flooding on burned federal land and the policy is purchased within 60 days of the fire-containment date, there may be no waiting period. Waiving of the waiting period is determined at the time of claim.
The NFIP encourages customers to reach out to agents directly to purchase flood insurance.
Customers can purchase NFIP flood insurance from the more than 60 insurance companies writing and servicing flood insurance on behalf of FEMA, or from agents working with NFIP Direct. Regardless of who writes the policy, NFIP flood insurance is the same. The premium and amount of coverage is the same regardless of the agent or insurance carrier.
Agents play a crucial role in helping clients understand what is and isn’t covered with flood insurance. Contents and building coverage are purchased separately, with separate deductibles. Building coverage only covers the building’s structure, while contents coverage protects the contents of a building.
For a full list of what is and isn’t covered, review the Summary of Coverage guide.