Property owners who buy flood insurance through the National Flood Insurance Program (NFIP) will soon have a new, more flexible payment option.
On Dec. 31, the Federal Emergency Management Agency (FEMA) — which oversees the NFIP — will break a 55-year tradition of requiring annual up-front payments for flood coverage and will offer the choice of monthly installments. While FEMA made the change to satisfy a statutory requirement, the agency also hopes the change will “expand access” and “reduce barriers to purchasing flood insurance.”
“Some consumers may lack the financial ability to pay the entire premium at one time,” FEMA wrote in the Federal Register. “The installment plan relieves the immediate financial pressure on policyholders from paying the entire premium amount at one time.”
Who this affects
Property owners renewing their NFIP policies or buying coverage for the first time can opt for monthly installments as of Dec. 31. But property owners whose lenders require them to escrow their NFIP premiums will still have to pay for coverage annually up front.
As of April 30, NFIP had 4.7 million policies in force, according to FEMA data. Dwelling, commercial, and condo policyholders will all have the option to switch. The only exceptions are those insured under group flood insurance policies — limited, subsidized policies that FEMA provides to individuals and households without flood insurance who experienced flood damage from a presidentially declared major disaster.
Florida has the most single-family home NFIP policies, at more than 894,000, according to the most recent state-level data. Texas and Louisiana follow, with more than 586,000 and 397,000, respectively.
Property owners can buy this flood insurance if their community participates in the NFIP. Homeowners who live in special flood hazard areas and have a federally backed mortgage must buy coverage. But many property owners don’t elect to purchase flood coverage or can’t because their communities don’t participate in the program.
How monthly payments could help
In 2024, more than half of respondents to a Bank of America Institute survey saw themselves as living paycheck to paycheck. The data showed about a quarter of households spend almost all their income on necessary expenses.
In its notice to the Federal Register, FEMA acknowledged that a monthly payment option could make coverage easier to buy for people who can’t afford to pay their entire premium up front. In Hawaii, for example, the state’s average risk-based NFIP premium is $3,258 per year, which homeowners previously had to pay all at once.
“Providing an option for monthly installments will expand access to flood insurance to meet the evolving needs of the nation,” FEMA wrote. “The option to pay in installments may also increase policyholders’ budgetary flexibility by alleviating cash flow pressure, as they could use the deferred payment to address other monthly needs.”
The agency also hopes that making more regular payments will keep homeowners aware of their flood risk and encourage them to retain coverage.
“Facing a one-time annual payment, a policyholder may rationalize a decision to opt out of renewing on grounds that they perceive their risk to be low or that they will instead save the money spent on premium to self-fund repairs,” FEMA wrote. “In contrast, policyholders who make more frequent flood insurance payments will have an ongoing reminder that they are protected against flood, and may be more aware of flood alerts, news about flooding, and more accurately perceive their risk.”
What’s next? Managing new risks
Changing weather patterns are already exposing more Americans to flood risk. Hurricane Helene caused devastating flooding in Mills River, a small community in North Carolina that doesn’t participate in the NFIP.
The states with the most NFIP policies — Florida, Texas, and Louisiana — are also among the top 10 most expensive states for home insurance, according to Insurify’s home insurance report. The average annual cost of home insurance in Florida is $11,759, per Insurify data, and a standard home insurance policy doesn’t cover flood damage. Homeowners who need or want that protection have to purchase separate flood coverage from the NFIP or a private insurer.
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