Flood insurance can't be canceled and pro-rated? Is that right?

Question

Ok... so I posted a week ago about some refinances where I couldn't make the numbers work, because flood insurance quotes are just too high and ridiculous. Well, I ended up getting flood insurance on one of my properties (because of the refinances) and now, I'm being told that you CAN'T cancel the policy and have your premium pro-rated back to you. Anyone ever heard of this? Do I have any options, outside of contacting a lawyer? I literally got the policy 30 days ago. I'm open to your thoughts. The property is in Florida.

Paul O'Connor · Answer

I think I figured it out... the insurance company told me that I couldn't cancel the policy, which didn't make any sense... I should be able to cancel any insurance that I don't want on my property. The only reason that I got flood insurance, was because I was going from owning the property outright, to wanting to get a refinance on the property to buy more investment properties. But once I found out how much money I was losing, due to ridiculously high flood insurance quotes... I cancelled the refinances. So, the flood insurance company, still had the lender listed on the property, who was going to REQUIRE flood insurance. That's why I couldn't cancel it, I figured that part out, now they'll let me cancel the policy.

John Mocker · Answer

Paul,

The rules were set up by FEMA for the National Flood Insurance Program.   Most of the Private Market flood policies seem to be using similar rules.  I think that, if the property is rezoned out of a A or V flood zone (the ones that require the lender to require flood Insurance then you may also have the opportunity to cancel the coverage.

If you do manage to cancel the coverage but the lender still requires it, they can put a policy in place and charge it back to you (called Forced Place Coverage).  Likely that the forced place coverage cost will be significantly higher than what you are paying now.

Andrew Postell · Answer

@Paul O'Connor if you own a property in a flood zone, you are required to have flood insurance.  If you sell the property, you can then cancel the policy mid-term...and only under certainly scenarios.  Here's the reasons that are allowed to cancel your flood policy:1. The insured sells or transfers ownership of the insured building and does not have an insurable interest in the insured building.2. Relocation or destruction of the insured building.3. Alteration of the insured building rendering it ineligible for coverage. (An example is the insured removes a mobile home from a permanent foundation and places it on wheels.)4. The builder or developer requests to cancel a policy mid-term because ownership transfers to a newly created condominium association, and the association purchased a policy under its name.5. The building is a total loss because the building damage is greater than or equal to the replacement cost of the building.6. The lienholder foreclosed on the building.