When you are planning to purchase a property located in a high risk flood zone, it is always good news to hear the current owner has flood coverage and the policy can be transferred to the new owner. This tells you the coverage has been continuous on the property and you will benefit from the NFIP “grandfathering” rule. *Please refer to your insurance agent for clarification of those benefits.
When you see a property listed for sale that states:
“Flood insurance cost is $1,000 annually” or “Current flood $1,000” that is simply telling you what that “specific” owner is paying for their flood insurance. Please DO NOT assume that will be the cost of your flood insurance.
As the buyer, you should ask for a copy of the current owner’s flood insurance declaration page. This will provide you with the details of the current coverage.
The following items are some of the variables that will control the final cost of your individual flood insurance premium.
- The current owner may have a deductible in the amount of $2,000, $5,000 or as high as $10,000. The higher the deductible, the lower the premium. A $10,000 deductible may require written consent from your lender.
- The current owner may not have a mortgage on the property. They may choose to carry minimal coverage instead of the maximum amount that is required if you are obtaining a mortgage.
- The current owner may be using the property as their primary residence. If you are purchasing the property as a secondary residence, your premium cost can increase. Your flood and homeowners’ premiums will increase for a vacation/secondary residence.
A word to the wise, please ask questions beforehand so you know what “your” annual flood insurance premium will actually cost you. It is always best to ask an insurance agent that has flood insurance expertise.
Please also be aware, you are required to pay your flood insurance premium “in full” annually. At the time of your purchase, you will reimburse the seller for prepaid months-based policy expiration. Ex: If you purchase the property on June 1st and the policy expires Oct 1st, you will need to reimburse the seller for June/July/Aug/Sept.
It is always best to fully understand what your expenses will be well in advance of the closing date.
Happy house hunting, Happy Holidays!! Please stay healthy.
