When a loan closing is involved, if applications or change requests are dated after the lapse, then the policy or change request can't be issued. If the loan is closing before the lapse in authority, and the premium payment is not part of the closing, as long as the application or request and premium are received within 10 days of the closing date the policy or change may be effective as of the date of the closing.

When the premium for the payment is from the escrow account, title company or settlement attorney, then payment must be received within 30 days of the closing date. If the loan closes after the lapse in authority but the date of coverage was before the lapse period, then payment from the insured is acceptable within 10 days. If payment is from the escrow account or others, payment is acceptable within 30 days of the effective date of the closing.

Related: Understanding private flood insurance options

Renewing coverage

Renewals are handled similarly; offers to renew a policy can't be made during the lapse in authority. If a renewal is offered before the lapse in authority and premium payment is received before 30 days have passed, then the policy may be renewed. The same applies if underpayment was made as long as the difference is made up within 30 days. If payment is received beyond the 30 days, the policy may not be renewed.

If the renewal requests increased limits that are within the inflation factors on the bill or the next higher Preferred Risk Property (PRP) or a newly mapped limit, it is processed the same way as policies with premiums received within or after the 30-day grace period, whichever applies. If the renewal requests a higher limit than the inflation factor or PRP or newly mapped limit, the amount above the existing coverage amount must be handled as if it was a new policy or a request to increase coverage as discussed earlier.

Endorsements that increase coverage are handled the same as new policies or requests to increase coverage, as described previously. Endorsements not increasing coverage are handled using existing NFIP rules, and policies may be assigned during the lapse. Cancellations may be handled normally.

Related: FEMA publishes guidance for handling flood losses

Expiration dates

Policies that are in force before midnight of the last effective day of authorization will remain in effect until their expiration date, and any claims filed will be handled as usual. If a policy is in force after the last day of authorization, claims on those policies are handled as usual as well.

If a claim occurs under a policy that was not issued due to a lapse, it can still be investigated under a reservation-of-rights letter or a non-waiver agreement, up to the point of payment. Payment will not be made if the NFIP is not reauthorized, however.

If the NFIP is reauthorized retroactively, then the policy will be issued and the claim paid as appropriate. If the reauthorization is not retroactive, and the NFIP is authorized with a lapse, policies without a waiting period, which are the loan closings, would become effective the date of the reauthorization. Policies with a 30-day waiting period would become effective 30 days after the date of reauthorization.

For example, the date of the lapse is Dec. 22, 2017. The NFIP is reauthorized Jan. 22 with a lapse; the reauthorization does not go back to December. Policies that involve loan closings will be effective as of the date of reauthorization, Jan. 22. Policies with a 30-day waiting period will be effective Feb. 22.

When reauthorization is not retroactive to the first day of the lapse, policies with a one-day waiting period become effective one day after the effective date of the reauthorization. If reauthorization is effective Jan. 5, the policy is effective Jan. 6.

The NFIP makes a number of recommendations to carriers while the program is lapsed. All premiums for changes or policies effective on or after the first day of the lapse should be held in abeyance, as should applications.

Because the acceptance of applications and premiums gives the impression that a contract is in force, carriers should advise applicants in writing that insurance is unavailable by law, pending reauthorization. The NFIP provides a sample letter for carriers to use to notify applicants of the situation.

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