Why is my Flood insurance premium going up?

In a nutshell, the National Flood Insurance Program (NFIP) is broke! Hurricane Katrina (2005) caused the program to rack up massive debt ($18 billion) and Super Storm Sandy of 2012 has added to the debt. This past session of Congress finally addressed the problem and decreed that NFIP must operate on a break even basis. The only sources of new funds are the premiums you pay and the premiums must go up to offset the debt.

How much will my flood premium increase?

In the past, any flood rate increase was limited by law to no more than 10% each year. The new law, called the Biggert-Waters 2012 Flood Reform Law, allows for premium increases of up to 20% each year. The flood insurance reps that visit C. T. Lowndes & Company tell us to look for premium increases in the 15-18% range. Rates are usually adjusted as of May 1 of each year.

The insurance on my older home on the beach has gone up 25%! Why is this?

For older homes, built prior to 1974, the flood insurance premiums have been artificially low, or subsidized. The theory was that a home owner should not be penalized for a home not meeting current flood building codes if the structure was built before codes were placed in effect. This theory is no more! There will be a premium increase up to 25% each year for the next 4 years for homes that are secondary, non-primary residences.

I received a letter from NFIP asking if I live in my home full time. What is this about?

Refer to the question above. If the house is your primary residence, be sure to sign and return the letter to your agent or to the insurance company shown in the letter. Doing so will prevent the 25% increase.

Can I buy flood insurance elsewhere?

Probably not. The federal government entered the flood insurance business because for-profit insurance companies stopped offering coverage around 1970. These companies realized flood insurance was a money loser unless very high premiums could be charged. Consumers were not willing to pay the high premiums so Uncle Sam stepped in.

Posted 4:49 PM  View Comments

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