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What I’m learning about lender-placed flood insurance

November 4, 2014

My mortgage bank requires flood insurance for our home on the NJ shoreline. I hate paying the premium lately after I learned that I can’t collect on a claim because it is highly unlikely that flood waters would ever rise high enough to a level that would to reach my house that is elevated on pilings. It understand that it is physically impossible for enough volume of water to accumulate in the bay to allow it to raise to a level that would be 15 feet above mean high tide. So now I look at the coverage as an unavoidable waste of money.

I was dragging my feet on paying the renewal bill on the flood insurance policy a few months ago when the bank sent a letter threatening to add lender-placed coverage. We’ve been conditioned to believe that is a bad thing. The letter said “We strongly encourage you to obtain your own flood insurance coverage and not rely on the renewal or replacement Lender-placed flood insurance”. But the letter does not say why. The bank’s quoted rate was about half the rate I pay my agent. I was skeptical but decided to allow the lender-placed coverage to be issued.

Today I received the coverage details and reviewed the certificate of coverage for the lender-placed insurance and it seems to check out. It is issued under the same National Flood Insurance Program as my prior policy. There seems to be no policy fee tat was a significant amount on my former policy. Coverage limits and deductibles are the same as my previous coverage. Personal property isn’t covered but I wasn’t concerned about this anyway.

So I would encourage anyone in a similar situation to consider the possibility that lender-placed flood insurance might not be as bad as we’ve been led to believe.

Does anyone know why a lender would discourage the use of this type of coverage? It seems like a natural fit in a situation like this.

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