The National Flood Insurance Program (NFIP) Flood Insurance Manual does contain maximum deductibles allowed for flood insurance. Deductible amounts for flood insurance vary based on the policy rating and the amount of coverage purchased, as described more thoroughly in Table 8B in the NFIP Flood Insurance Manual.

Lenders may allow borrowers to use the maximum deductible to reduce the cost of flood insurance. However, Interagency Guidance warns that “it may not be a sound business practice for a lender, as a matter of policy, to always allow the borrower to use the maximum deductible.” A lender should “determine the reasonableness of the deductible on a case-by-case basis, taking into account the risk that such a deductible would pose to the borrower and lender.”

Additionally, we are not aware of any laws or regulations that would prohibit paying for flood insurance in installments rather than for the whole year if allowed by the insurance provider. Your institution would be taking the additional burden of monitoring whether your customer is making installment payments on time to ensure that the property continues to be covered by flood insurance for the term of the loan, as required by your primary federal regulator’s flood regulations (in this case, the OCC).

For resources related to our guidance, please see:

• NFIP, Flood Insurance Manual, Rate Table 8B. Deductible Factors, page J-18 (October 1, 2020)

• Interagency Questions and Answers Regarding Flood Insurance, Determining the Appropriate Amount of Flood Insurance Required, Question 9 (“Can a lender allow the borrower to use the maximum deductible to reduce the cost of flood insurance? Yes. However, it may not be a sound business practice for a lender, as a matter of policy, to always allow the borrower to use the maximum deductible. A lender should determine the reasonableness of the deductible on a case-by-case basis, taking into account the risk that such a deductible would pose to the borrower and lender. A lender may not allow the borrower to use a deductible amount equal to the insurable value of the property to avoid the mandatory purchase requirement for flood insurance.”)

• OCC, 12 CFR 22.3(a) (“A national bank or Federal savings association shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the building or mobile home and any personal property that secures a loan and not the land itself.”)