The National Flood Insurance Program (NFIP), a federal program offering flood coverage to more than 5 million property owners nationwide, will lapse at midnight on July 31, 2018, if it is not extended. The program, which has been extended six times since September 2017, is among the only options available to property owners in high-risk areas of the country. Since federal law requires buyers in those areas to have a policy, inactivity on the part of this program can impact home sales and closings. According to the National Association of Realtors (NAR), approximately 1,400 sales and closings were canceled or delayed each day when the program was allowed to lapse for a month in 2010.
Why the Program Lapses
NFIP was created by Congress in 1968 to provide an insurance alternative to disaster assistance in the wake of flooding. The cost of the program was covered by its premiums until 2004. Hurricane Katrina and Hurricane Sandy contributed to nearly $25 billion of debt by the end of August 2017, and the program has been borrowing funds since that time.
Critics of the program argue it encourages development in disaster-prone regions and charges “risk-blind” insurance rates. In Fall 2017, the U.S. House of Representatives passed a bill to address some of the program’s shortcomings, but the legislation has stalled in the Senate.
What You Need to Know About the Potential Expiration
If NFIP does lapse at the end of July, it will likely stall or cancel thousands of home sales and closings since properties in at-risk areas cannot be bought or sold without this coverage. Existing policy holders will retain coverage even if the program is not reauthorized. Homeowners whose policy expires after July 31 will be unable to renew, but will have a 30-day grace period.
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