Money Management

Can a mortgage lender force you to buy flood coverage?

QA bank that recently took over my home mortgage has notified me that my property is subject to a flood hazard. I disagree, but the bank says it has the right to buy flood insurance on my home from a company of its choice and make me pay the premiums. Can that be true?

A Partly. The 1994 National Flood Insurance Reform Act obligates federally regulated lenders (including most banks and other financial institutions) to require borrowers to have such coverage for properties in designated Special Flood Hazard Areas. Even if you don't live in an SFHA, your mortgage document may give the bank an option to insist that you pay for flood insurance to protect its investment.

However, the bank should have told you that you have a free choice of insurer. You can buy coverage from an agent who deals directly with the Federal Insurance Administration or through a private company that issues flood policies and pays claims independently. More than 100 carriers do so under an arrangement with the FIA; they charge the same premiums the federal government charges through its direct program.

Also, if you dispute the need for flood coverage, you can ask for a review by the Federal Emergency Management Agency, which is responsible for carrying out the mandatory flood insurance provisions. You'll have to pay a fee for the review, though the lender might be willing to share the cost.

Stretching out withdrawals from an inherited IRA

QMy wife's mother, who died early this year, had been taking required minimum distributions from an IRA that my wife has inherited. Her mother's distributions were based on her single life expectancy recalculated annually, not on joint life expectancy with her daughter. The IRA trustee says my wife can't stretch out her withdrawals over her own expected lifetime. Is this true?

A No. The bank is relying on a general rule that, if the original IRA owner was required to take minimum distributions, the beneficiary must receive them "at least as rapidly" as the owner had to. In this case, however, your wife's mother could have slowed down her withdrawal rate by basing it on joint life expectancy. Therefore, the IRS will allow your wife to figure her minimum distribution as if her mother had taken both of their lives into account.

Since your wife's mother recalculated her life expectancy annually, your wife must base her distributions on her own single life expectancy, counting from the year her mother's mandatory withdrawals began. Suppose the year was 1991, and your wife's life expectancy then was 34 years. She must subtract 1 for every year since, so she can stretch out her required distributions for 24 years, starting in 2001.

How to check out an Internet bank

QI find that I can get better rates on certificates of deposit from some Internet banks than from brick-and-mortar banks in my area, but I want to make certain my deposits are protected by the Federal Deposit Insurance Corporation. How can I do that?

A The FDIC maintains a database of all banks it covers. Go to its Web site, www.fdic.gov , and click on "Is my bank insured?" You'll be asked to enter the bank's name. If the name is a common one, identify the bank by location, if you know it. If the bank is insured, the number and date of its insurance certificate will appear on screen. You can then query the database for financial details and other information on the institution. The site also offers tips on checking out online banks.

Edited by Lawrence Farber,
Senior Editor

Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to memoney@medec.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.

 

Lawrence Farber. Money Management. Medical Economics 2001;3:124.