Most homeowner’s insurance policies don’t protect owners against flooding. For this reason, many people in flood-prone areas obtain insurance through the federal government’s flood insurance program.
This year, flood insurance premiums had been scheduled to increase dramatically for many people. But Congress has just passed a law that will eliminate or delay many of these increases – a move that not only will save homeowners money, but will also make it easier to put many properties on the market.
Here’s the background: For decades, flood insurance rates were held artificially low for many homeowners. The government in effect subsidized premiums by “grandfathering” many homes that didn’t meet revised construction standards or that were included in a newly redrawn flood zone.
But after the devastation of Hurricane Katrina and Hurricane Sandy, the federal program was left almost $25 billion in debt, and had to borrow money from the U.S. Treasury. So in 2012, Congress decided to eliminate most of the subsidies and to begin raising rates – often by a very large amount.
However, there was a backlash from homeowners who were facing enormous increases, and also from home sellers who had trouble interesting buyers in their properties due to the uncertainty over the new rates. Since just last fall, more than 40,000 home sales were delayed or cancelled due to flood insurance issues, according to the National Association of Realtors.
Congress responded this spring by passing a new law called the Homeowner Flood Insurance Affordability Act.
This new law cancels some of the huge increases required by the 2012 law, and even provides for refunds of past premiums in some cases. Other people will see their rates increase, but by much smaller amounts. There will be limits on how much premiums can go up each year, and some home buyers will be able to assume the sellers’ current premiums, rather than starting from scratch at higher rates.
The government is working to implement the new law, and not all the benefits will be available right away.
Also, not all property owners will be entitled to the advantages in the new law. Businesses, owners of vacation homes, and people whose homes have repeatedly sustained flood damage in the past might still be facing large premium increases.
In general, if you’re interested in buying a property where there’s any risk of flooding, you’ll want to investigate the latest insurance premiums (and expected future changes) so you’ll know what you’re getting into. Keep in mind that many properties that aren’t on the waterfront can still be within a flood zone.
If you’re a homeowner, you should also be aware that certain improvements, even something as simple as adding vents to help channel water in case of a flood, can significantly reduce your premiums.