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 from the financial losses flooding can bring. To do so, the NFIP is proud to partner with nearly 63 insurance companies to sell policies across the country.
Agents new to selling flood insurance likely have many questions, including:
- Why should I alert my clients about the importance of purchasing flood insurance?
- Who can purchase flood insurance?
- How do clients obtain a flood insurance policy?
- How much will it cost?
- When is the best time to buy?
- What is a high-risk flood area, and what does that mean for my clients?
Find the answers to these questions below to get started and learn more. Or download the NFIP’s guides to flood insurance:
Created by Congress in 1968, the NFIP is a federal program that aims to reduce the impact of flooding on individuals and communities across the country. It does so by providing flood insurance to property owners who live in communities that adopt and enforce floodplain management standards. These efforts reduce the costs and consequences of flooding, helping families, business owners, and communities recover faster and more fully after a flood event.
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. Talking to your clients about the important protections flood insurance can offer is a way to build your business while building trust.
A property does not have to be near water to flood. More than 20% 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. If a property is in a designated SFHA, federally regulated or insured lenders require the buyer to purchase flood insurance as a condition of their loan.
In the event of flood, federal disaster assistance—such as a U.S. Small Business Administration loan or FEMA disaster grant—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.
Anyone in a community that participates in the NFIP can purchase building or contents coverage, with few exceptions.
Property owners and renters, including:
- Owners of buildings under construction
- Business owners
- Condominium associations
- Owners of residential condominium units in participating communities
- 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.
Agents need to be aware that 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, may not receive replacement cost for repair of flood damage if it is their principal residence, and may not have their personal contents covered. 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
Additionally, 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.
Additionally, 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 too late to secure flood insurance protection.
Exceptions to the 30-day waiting period:
- If flood insurance is purchased in connection with making, increasing, extending or renewing your mortgage loan, there is no waiting period.
- If additional insurance is selected as an option on your insurance policy renewal bill, there is no waiting period.
- 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, there is a one-day waiting period.
- 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 nearly 70 insurance companies writing and servicing flood insurance on behalf of FEMA, or from agents working with NFIP Direct. Only a licensed property and casualty insurance agent can sell NFIP flood insurance.
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. This document provides general information about deductibles, what is and is not covered by flood insurance, and how items are valued at the time of loss.