Flood Insurance Update

It’s been one cold, snowy winter for most of the U.S. On March 6, NOAA reported that ice covered 92.6 percent of the Great Lakes. Then, half way through the month, the east coast was hammered with another blizzard. Spring will get here eventually and nobody can blame you for cheering. But before you get too giddy, keep this in mind: all that ice and snow is going to melt. The only question is how soon and how fast. Rapid melting accompanied by heavy spring rains could easily overload storm sewer systems, resulting in floods. Before that happens, maybe you should give some serious thought to flood insurance.

Standard Homeowners Policies Don’t Cover Flooding

Think your covered by homeowners insurance or renters insurance? Chances are you’re not. Standard policies don’t cover flooding. In fact, until about 1968, flood insurance was generally unavailable. Then Congress created the National Flood Insurance Program to subsidize flood insurance for eligible communities. Today, flood insurance is available to homeowners, renters, condo owners and renters and commercial property owners and renters. But, and this is important, unlike other types of property and casualty coverage that typically kick-in as soon as you pay the premium, with flood insurance there’s a 30-day waiting period from the time you buy until your policy goes into effect. In other words, don’t wait till the weatherman is predicting a record-breaking deluge, if you live in an area where flooding is possible, the sooner you apply, the better. You can purchase it through the same carrier who handles your homeowners, renters or small business insurance.

Flood Insurance Coverage Basics

Floods can happen just about anywhere. That’s why “flood” is defined in insurance policies as “an overflow of inland or tidal water; an unusual and rapid accumulation or runoff of surface water; mudslides or mudflows on usually dry land areas; and collapses of land as a result of excessive erosion due to flood.” A flood insurance policy can be written for almost any structure with walls and a roof that is principally above ground and fixed to a permanent site. The policy can be written to cover the building, its contents or both.

According to FloodFacts.com, the maximum coverage limits for a single-family home is $250,000 for the structure and $100,000 for the contents; and $100,000 for a renter’s contents. The policy will also cover flood debris cleanup. If that doesn’t sound like enough coverage, excess flood insurance policies are available that can increase the standard single-family structural coverage by an additional $500,000, and up to $100,000 more for contents.  Higher limits may be available depending on where you live. Your insurance agent can provide details.

FloodFacts.com also notes that the average premium is about $500 a year, but can be much higher if you live in a high-risk zone, or significantly less is you qualify for a preferred risk policy. Other factors that can determine your premiums include the amount of coverage you purchase, the location, age and design of the structure you’re covering, its elevation if it is located in a Special Flood Hazard Area and whether or not the structure is occupied. When you consider that the average flood damage repair estimate between 2008 and 2012 was $38,000, flood insurance could be a bargain.

New Flood Insurance Legislation Affecting Rates

In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which was intended to wean “homeowners off of subsidized rates and required extensive updating of the flood maps used to set premiums.” As reported by ABCNews.go.com, under Biggert-Waters, “premiums were to increase at actuarially sound rates over five years and required extensive remapping.” But many homeowners whose areas had never flooded were receiving insurance bills that were higher than their mortgage payments.

Faced with angry voters, this month, Congress went back to the drawing board and, in a rare bipartisan effort, passed the “Homeowner Flood Insurance Affordability Act,” also known as the Menendez-Grimm Act for the two legislators who authored it. Under key provisions, Menendez-Grimm restores “grandfathering” for policies written in communities with new flood maps. Grandfathering applies to structures that originally were built to code but were later found to be at greater risk of flooding. It allows those homeowners to take advantage of below-market rates, that are then subsidized by other policyholders. Menendez-Grimm preserves that grandfathered status and caps premiums at increases of 18% per year. As of March 14, AP reported that President Obama was set to sign Menendez-Grimm into law.