Those of us that live near the coast are hearing a lot about flood insurance these days. New maps, new Acts – what does it all mean? Over the years, the costs and consequences of flooding have continued to increase (think Sandy & Katrina). Contrary to what many believe, flood coverage does not fall under homeowners insurance. It is a separate policy that is provided by the Federal Government through the National Flood Insurance Program (NFIP). Last year, Congress passed the Biggert Waters Reform Act which extends the NFIP program for five years but requires significant reform. So how does this Act affect you?
It depends on where your home is located in the flood zone. All homes are in a flood zone, it is just a question of which zone. Homes in A or V zones have the greatest chance of flooding. If you live in these zones and have a mortgage, you are required to have flood insurance.
Anyone that currently has a flood policy will see an increase in the premium starting October 1, 2013. The average premium increase is 10%. If you own a seasonal/secondary residence, you will see a 25% increase. Expect this increase annually until you submit an elevation certificate to NFIP.
An elevation certificate will show NFIP exactly where your home is in relation to your town’s base flood elevation. So how do you know your base flood elevation? You need to look at the map for your community. To make things even more confusing, FEMA has published new maps for several counties in MA – Plymouth, Essex and Barnstable. (These maps are not in force yet – if they get approved they will be effective June 2014.)
The Act is designed to make sure the homes with the greatest risk of flooding pay a premium that reflects their risk. So if you have a home on stilts and are 4 feet above base flood elevation in a VE zone – you will pay less than your next door neighbor that has a finished basement that sits 8 feet below base flood elevation. Your premium reflects your risk – which makes sense.
However, there are many homeowners that have never been required to purchase flood. With the new MAP changes, if they have a mortgage they will now be required to carry Flood insurance – and it could be a considerable expense.
Another change from the Act is the elimination of grandfathering or being able to assume the flood policy of the prior homeowner. I have a client who purchased his home last year; he was able to assume the prior owner’s flood insurance which had been in force for over 20 years – at a premium of $1,100 annually. If he was buying his home this winter instead of last, he would not be able to assume that policy – and his premium would be $8,500 annually.
This will impact our local real estate markets. If you are selling a home in a high risk flood zone, you should consider getting an elevation certificate. Potential buyers will need this in order to obtain accurate pricing for flood insurance. If you are buying a home in an area with a pending MAP revision, you should make sure you are aware how the revision will impact your flood insurance rates.
These changes are not all bad news. Getting an elevation certificate might lower your flood costs. In some places, base flood elevation is going down – which means some owners may see lower premiums.
For now, don’t panic. Talk to your agent and review your flood policy. If you live in a high risk zone talk to your local zoning board to see if there are ways you can mitigate your risk to lower your flood insurance costs.