Frequently Asked Questions

1. Flood insurance was never required on my property until now. Why?
2. What is a Preferred Risk Policy (PRP)?
3. Can my lender require me to have flood insurance?
4. What does it mean to have "lender placed" flood insurance?

1. Flood Insurance was never required on my property until now. Why?

There are a number of different possible answers to this question. Keep in mind that lenders are bound by law to require flood insurance if your property is determined to be in a high-risk flood zone according to FEMA's flood maps.

If you think that your property is improperly placed in a flood zone according to FEMA's flood map, then you can apply for a Letter of Map Change. Otherwise, here are some of the possible reasons flood insurance may now be required on your home:

• The previous owner could have purchased the property without a federally insured lender being involved. Only federally insured lenders are required to enforce the purchase of flood insurance.
• The property may have been purchased before the flood maps and requirements concerning flood insurance were either in place or being enforced.
• The flood maps in a given area may have been recently revised, and the revision placed your property in a high-risk flood zone.
• The lender may have been unaware that the property was in a high-risk flood zone until recently.

2. What is a Preferred Risk Policy (PRP)?

A Preferred Risk Policy from the NFIP offers fixed combinations of building/contents coverage or contents-only coverage at modest premiums. The PRP is available for property located in B, C, and X zones in Regular Program communities that meet eligibility requirements based on the property's flood loss history. (Source: NFIP Manual Oct 2006)

3. Can my lender require me to purchase flood insurance?

Federally-regulated lending institutions must require flood insurance on loans secured by homes located within a high-risk flood zone (Special Flood Hazard Area). Whether your structure is in the high-risk flood zone or not, your lender can, as a condition of the loan, require you to obtain flood insurance. This rarely happens, but there are circumstances where the lender might require flood insurance even if there is no federal requirement.

4. What does it mean to have "lender placed" flood insurance?

If at any time during the term of a loan, the lender or servicer determines that the mortgaged property is not covered by flood insurance or it does not have enough coverage as required by law, then they must notify the borrower that adequate flood insurance is required. A borrower has 45 days from the date of that notice to obtain coverage. If coverage is not purchased by the borrower, then a lender or servicer is required to obtain coverage and charge the borrower for the premium.

It's usually in your best interest to purchase flood insurance through your insurance agent before the lender obtains a lender placed flood insurance policy.

• Lender placed insurance covers the lender's interest, not necessarily your interests. It doesn't usually include coverage for contents, and the main purpose of the coverage is to pay off the loan, not to rebuild or repair the home should it be flooded.
• Lender placed flood insurance can be more expensive than a properly rated policy from the NFIP.
• If the federal insurance requirement is removed (e.g., through the LOMC process), unlike with a standard NFIP policy, you may not be able to get any premium refunded to you on a lender placed policy.