Monthly flood insurance premiums for more than 1 million homeowners are scheduled to increase as a result of the passage in July 2012 of the Biggert-Waters Flood Insurance Reform Act of 2012. Key provisions of the legislation will require the National Flood Insurance Program (NFIP) to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes will mean premium rate increases for many policyholders. A byproduct of this change is the depression of home prices in flood zones, as potential buyers balk at sky high premiums.
Subsidies have kept rates as low as 10 percent of the actual cost. FEMA is reassessing its risk calculations, drawing flood maps that will bring higher rates to some areas.
The flood insurance program amassed more than $20 billion in debt after Hurricane Katrina slammed into New Orleans in 2005 and it borrowed more after superstorm Sandy hit the East Coast in 2012.
Potential sellers are often caught off guard when they learn that their home that has been paid off, and did not require flood insurance, now lies in a revised FEMA flood zone, or that a new owner will be forced to pay non subsided premiums at much higher rates. Even the smallest of creeks or streams can trigger a flood zone inclusion. A quick way to check to see if your home is in a flood zone is visit www.floodsmart.gov – enter your address, city, state, and zip code. You will be given a flood risk profile for your home.
An estimated 20% of the 5.5 million flood policies nationwide are subsidized, in many cases meaning their rates were set before flood maps were adopted in the 1970s and remained that way until Biggert-Waters. As a result, owners of those older, subsidized properties could see rate increases of 17% a year until they reach a level that reflects their market risk. Even owners of nonsubsidized homes could see annual rate increases of 6 to 9% per year
Federal flood insurance covers $1.3 trillion of property in all 50 states, with Florida, Texas, Louisiana, California and New Jersey making up two-thirds of all policies, according to Federal Emergency Management Agency, which runs the program.
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