Flood Insurance rules are not easy and we still see both bankers and insurance agents that don’t know the rules. One common instance is regarding the 30-day waiting period for flood insurance. You would think this would be a pretty simple concept but whether there’s a 30-day wait or not depends on various factors.
The 30-day wait does NOT apply to:
1. The purchase of flood insurance when the purchase is in connection with making, increasing, renewing or extending a loan; or
2. The initial purchase of flood insurance in connection with a map change/revision that moves a structure into an SFHA (within a 13-month period).
The 30-day wait DOES apply to a loan where the flood insurance policy has expired. However, a Standard Policy allows for a 30-day grace period after the expiration date to reinstate the policy and keep continuous coverage. Thus, if the borrower pays the premium BEFORE the 30-day grace period ends, there is NOT a 30-day wait before the policy takes effect.
The 30-day wait also applies to Mortgage Portfolio Protection Program (MPPP) insurance. For example, a borrower’s policy expires and the premium is not paid before the 30-day grace period ends – if the Lender force places with MPPP insurance, the 30-day wait applies. A Lender may force place the MPPP insurance after the policy expiration date, rather than waiting until after the 30-day grace period ends to avoid a lapse in coverage. However, the Lender cannot charge the borrower for the insurance until day 46, after the 45-day notification requirement has ended.