Why I Need to Escrow My Flood Insurance?

flood insurance escrow

Why I Need to Escrow My Flood Insurance?

An escrow account is a third-party account, mostly opened by your mortgage lender, to keep track of payments concerning the property you financed, including the property’s taxes, insurance payments, association dues, etc. You will usually have an escrow account if you have a mortgage. If you have been escrowing your taxes and home and auto insurance policies, you might wonder whether the flood insurance you are going to buy also needs to be escrowed. Let us find out.

When Does Flood Insurance Need to Be Escrowed and Why?

You must buy flood insurance if your home is prone to flood damage. If you have bought your home with a mortgage and have an escrow account to manage the mortgage and other insurance payments, your lender may require you to escrow your flood insurance too.

According to FDIC (Federal Deposit of Insurance Corporation), lenders shall require escrow of all premiums and fees paid for any flood insurance required for a mobile home or residential improved real estate that is financed by any designated loan.

Residential improved real estate is land where a home is constructed or will be constructed, and a designated loan is the amount you receive on that property in a flood zone. A lender will not sanction a loan for a property in a high-risk flood zone unless you have comprehensive flood insurance.

Mostly, people buy flood insurance through the NFIP (National Flood Insurance Program), operated by the government and created in the 1960s. The NFIP aimed to make flood insurance available to everyone without intending to make profits, so they incurred a significant loss. Following the loss, the cost of NFIP flood insurance has gradually increased.

In 2016, the government permitted lenders by law to escrow flood insurance to guarantee that homeowners in high-risk flood zones keep flood insurance for the duration of their loan. Keeping funds in an escrow account allows you to increasingly contribute to your premiums over time, so paying higher premiums won’t be difficult.

Also, managing flood insurance premiums through an escrow account will help lenders and insurance providers track your payments easily while ensuring you have enough funds to make payments on time. This increases your credibility while mitigating the chances of late or missed payments.

When Does Flood Insurance Not Need to Be Escrowed?

Your flood insurance doesn’t have to be escrowed, if:

  • Your mortgage is with a small credit union or lender, not with the major bank.
  • Lenders have less than $1 billion in assets, and they usually don’t escrow other tax or insurance payments.

You may not need flood insurance coverage for your condo on a loan if it has sufficient condo association coverage.

You can also provide your lenders with your current mortgage information, so they can help you determine whether escrowing flood insurance is necessary.

Protect Your Property Against Floods with Club Agency

If you are looking for comprehensive and affordable flood insurance coverage in New York and surrounding areas, contact us today at Club Agency. We will evaluate your risk exposures and customize your coverage accordingly to ensure unwavering protection.

COVID-19 Update:

At RMS and associated firms, business continues as usual. Our staff is remote-capable and available to handle all partners, brokers, and insureds at the present time. Contact us today!Executive Order for Policyholder Payments