New York Gov. Kathy Hochul signed a chapter amendment—A.2056—into law last month, which further limits how much flood insurance mortgage lenders can require. This new law amends legislation passed last session that prevented lenders from demanding flood insurance that exceeded the outstanding loan balance. This update refines and expands those rules. The new law is effective Thursday, May 15, 2025.
For insurance agents, mortgage lenders and homeowners, understanding these changes is important. Here’s what you need to know.
What’s changing?
The old law prohibited lenders from requiring borrowers to purchase flood insurance that exceeded the outstanding loan balance at the beginning of the policy year or included contents coverage inside the home.
The new law goes a step further. It adds a second cap on flood insurance requirements. Lenders cannot require coverage beyond the lesser of the replacement value of the home (i.e., the cost to rebuild), or the outstanding loan balance at the start of the policy year. The law retains the existing ban on mandatory contents coverage. In addition, lenders will still be required to explicitly inform borrowers that the required insurance may not cover all repair costs or personal losses, encouraging them to consider purchasing additional protection.
Why this matters for homeowners
Before these laws, some lenders required flood insurance that exceeded the actual value of the home, leading to unnecessarily high insurance costs. Now, homeowners will only need to insure up to the lesser of their home’s replacement cost or their mortgage balance—ensuring they aren’t overpaying for unnecessary coverage.
At the same time, homeowners must recognize that lender-required insurance only protects the lender’s financial interest. If they want full protection against flood damage, they may need to purchase additional coverage beyond what the lender mandates.
Final thoughts
New York state’s updated flood insurance law is designed to protect homeowners from overpaying for unnecessary coverage while ensuring they are well-informed about their insurance needs. However, it also underscores the importance of voluntary flood insurance purchases beyond what lenders require.
For insurance agents, this law provides an opportunity to educate homeowners about their true flood risk and offer policies that fully protect their homes and belongings—not just their mortgage balance.
The bottom line is homeowners may not be required to carry as much flood insurance, but they should still work with a trusted insurance agent to make sure they are fully covered against potential flood damage.
If you’d like additional resources to talk to your clients about the importance of flood insurance, PIA Northeast members can access the Flood Insurance Tool Kit.
Bradford J. Lachut, Esq.
Bradford J. Lachut, Esq., joined PIA as government affairs counsel for the Government & Industry Affairs Department in 2012 and then, after a four-month leave, he returned to the association in 2018 as director of government & industry affairs responsible for all legal, government relations and insurance industry liaison programs for the five state associations. Prior to PIA, Brad worked as an attorney for Steven J. Baum PC, in Amherst, and as an associate attorney for the law office of James Morris in Buffalo. He also spent time serving as senior manager of government affairs as the Buffalo Niagara Partnership, a chamber of commerce serving the Buffalo, N.Y., region, his hometown. He received his juris doctorate from Buffalo Law School and his Bachelor of Science degree in Government and Politics from Utica College, Utica, N.Y. Brad is an active Mason and Shriner.
