Flood insurance set to expire again Sept. 30
The National Flood Insurance Program (NFIP) is set to lapse for the fifth time this year and at the height of the Atlantic Hurricane season. During lapse periods, home loan closings can be delayed due to the inability of buyers to obtain flood insurance.
The program will lapse on Sept. 30 unless Congress passes another temporary extension by then. The last lapse — on May 31 — lasted a month as Congress did not pass a short-term extension until the end of June. Existing flood insurance policyholders are largely unaffected as each previous reauthorization was retroactive to the expiration date and claims that occurred during the lapse period were paid. It is highly unlikely that Congress would allow the NFIP program to expire permanently.
The National Flood Insurance Program is particularly important to Sanibel, as the entire island is considered a High Hazard Flood Area per the Federal Emergency Management (FEMA). Lenders require that properties in high hazard areas be insured for flood. Since flood insurance is only available through the NFIP, even temporary lapse of this program can delay loan closings unless flood insurance is purchased prior to the lapse.
Home buyers can protect themselves from loan closing delays in one of two ways:
• If you are in contract to buy a home or expect to close on a home in the next 90 days, buy a flood insurance policy on that property before midnight on Thursday Sept. 30. The policy can be changed at any time and if the home sale falls through, all but a $40 Federal Policy Fee is refundable.
• If the home seller has a flood insurance policy, the buyer may assume that policy directly from the seller. Your insurance agent or realtor can provide the form required by FEMA. The buyer pays the seller directly for the remaining policy term and becomes the insured. Buyers need to do some homework before relying on this strategy. If the seller does not have flood insurance there may be nothing to buy. Also, it is important to check with your home lender before relying on this strategy as some require a full-year policy and premium at closing, which this strategy does not provide.
One would think that Congress would simply pass a long-term reauthorization. Such a bill (H.R. 5114) was passed by the House on July 15 with unanimous support from the Florida Congressional delegation, but is stalled in the Senate Banking Committee.
Since its formation in 1968, the National Flood Insurance Program has accumulated over $18 billion in debt to the U.S. Treasury. H.R. 5114 would reauthorize NFIP for five years, though with some important changes, the impact of which would likely make flood insurance more expensive for many Sanibel property owners.
Currently, the Senate is deeply divided as to how to revise the program and is much more likely to continue passing short-term extensions rather than to consider comprehensive reform at least until the next Congressional session.
(Chris Heidrick, CPCU, CFP is principal of Sanibel-based Heidrick & Company Insurance and Risk Management Services and can be reached via e-mail at Chris@SanibelInsurance.com.)