Did you know that National Flood Insurance Program (NFIP) policies can be transferred from one property owner to the next? If you are selling your home let the buyer know that you have an existing NFIP policy that can be transferred to them. This process is called “policy assumption” and can make the homebuying process easier for both the buyer and seller.
Benefits of Policy Assumption
If your home is in a high-risk flood zone it can be difficult to sell your property in a timely manner due to flood insurance requirements. With policy assumption the buyer does not have to go through the hassle of meeting underwriting requirements to purchase a flood insurance policy for the home, which can help your property sell faster.
Another major benefit of this process is that it can be more cost-effective for the buyer. Policy assumption allows the homebuyer to avoid the extra cost of an elevation certificate, which are typically required for properties in high-risk flood zones. Additionally, if you are buying a home that has been recently moved, or will soon be moved, into a high-risk flood zone, you can assume the existing policy on the home and keep the rates for the lower-risk flood zone. This can save you hundreds, if not thousands, of dollars on your required flood insurance.
Premiums for NFIP policies are paid annually, so by assuming an existing policy you do not have to worry about paying a flood insurance premium until the renewal date. This can help reduce your closing costs.
What’s the Catch?
The only slight downfall to a policy transfer may fall on the seller. As mentioned previously, premiums for NFIP policies are paid in full for an entire year. Typically the only time a refund is when a property is sold. By doing a policy transfer the seller is not given a refund from the carrier because the policy technically remains in effect. However, this is something that may be worked out separately amongst both parties, especially if the buyer is receiving a benefit by assuming the policy - such as locking in a lower rate than they would receive on a brand new policy.
Instead of choosing your own coverage limits and deductible as you would with a brand new policy, you are adopting a policy that has already been written. This does not mean that you have to keep these coverage options though. Once the new policyholder takes over, endorsements can be made per the guidelines of the NFIP. Coverage can be increased during the policy period, but it cannot be decreased until at the time of renewal.
However, occupancy changes must be made at the time of policy assumption. For example, if the property is currently owner-occupied and the new buyer is going to use it as a rental property, this change must be at the time of policy transfer. Any additional premium that might be due is taken care of at closing.
How To do a Policy Assumption
The process is fairly simple, there are required forms that you will need to fill out in order to transfer your policy to a new owner. The forms will need to be reviewed by the current flood insurance carrier for approval. If you have any questions about policy assumptions or are selling a home and would like to transfer your existing policy to the buyer, contact our team of flood experts to help you.