"I had a customer who purchased a home located in a flood zone X.  The lender was not requiring a flood policy as a condition of the loan approval, but my customer still wanted to purchase the policy.  (I like to think it was due to my amazing selling skills!)  An underwriter at my Write Your Own (WYO) flood company told me that since the policy was not required  by the lender for a loan closing there was a 30-day wait for coverage to become effective.  I don’t think the underwriter was correct and maintain that the policy should have been effective at the time of closing.  Who is correct?"

Dear Amazing Salesman, you are correct so take the day off! As many flood gurus know, there often is a 30-day wait for coverage to become effective.  The National Flood Insurance Program (NFIP) flood manual lists exceptions to the 30-day wait.  I have reproduced the applicable rule (direct from the manual) where the wait does not apply. 

Note paragraph number 2 is exactly what you describe.  The NFIP manual even states, “... regardless of flood zone.”  The key question to ask is as follows:  “Is the customer purchasing the policy to be effective at the time of the loan closing?”  If such is the case then there is no 30-day wait, even if the lender does not require flood coverage and even if the house is not located inside a “Special Flood Hazard Area” (SFHA)…what your customer refers to as “a flood zone.” 

Here’s the excerpt from the manual:

2. New Policy – No Waiting Period (Loan Transaction)

Flood insurance that is initially purchased in connection with the making, increasing, extending, or renewal of a loan shall be effective at the time of loan closing, provided that the policy is applied for at or before closing. Use the rules below to determine the effective date.

a. Premium payment from the escrow account (lender’s check), title company, or settlement attorney is considered made at closing if the check is received by the writing company within 30 days of the closing date (closing date plus 29 days) and the Application is dated on or before the closing date. If received after 30 days, the effective date is the receipt date regardless of the flood zone.

b. If premium payment is from other than the escrow account (lender’s check), title company, or settlement attorney, and the Application is dated on or before the loan closing date, the effective date is the closing date if the Application and premium are received within 10 days of the closing date (closing date plus 9 days). If received after 10 days, the effective date is the receipt date regardless of the flood zone.

(Example: presentment of premium and application date – April 3; refinancing – April 3 at 3:00 p.m.; policy effective date – April 3 at 3:00 p.m.)

If a loss occurs during the first 30 days of the policy period, the insurer must obtain documentation, such as settlement papers, to verify the effective date of the policy before adjusting the loss.

Copyright 2012 by the Florida Association of Insurance Agents.
Reprinted with Permission