Many people don’t realize that flooding is the most common natural disaster in the United States. In the past 5 years, all 50 states have experienced floods. According to the Federal Emergency Management Agency (FEMA), total flood claims average nearly $4 billion per year. The average flood claim is nearly $42,000.

Unfortunately, many people also don’t realize that standard homeowners’ and renters insurance policies do not cover flood damage, and that they need a separate flood insurance policy. These policies are commonly obtained through the National Flood Insurance Program (NFIP). Though created by Congress in 1968, recent legislation is reforming the NFIP.

The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which repeals and modifies the Biggert-Waters Flood Insurance Reform Act of 2012, will slow some flood insurance rate increases and offer relief to some policyholders who experienced steep flood insurance premium increases in 2013 and early 2014. Flood insurance rates and other charges will be revised for new or existing policies beginning on April 1, 2015.

HFIAA requires gradual rate increases to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates. Implementation of the rate changes is subject to a rate-increase limitation of 18% for individual premiums and 15% for average rate classes.

HFIAA also slowed the elimination of subsidies provided for in Biggert-Waters and amended most of the provisions mandating that certain policies transition immediately to higher full-risk rates. To compensate for the decrease in revenue, HFIAA calls for the addition of a surcharge on all policies. This surcharge, which also applies to renters’ contents-only policies, is a flat fee based on occupancy type rather than a building’s flood zone or construction date.

  • Primary Residential (single-family / individual condominium units): $25
  • Non-Primary Residential (single-family / individual condominium units): $250
  • Multifamily Residential (condominium and other buildings): $250
  • Non-Residential: $250

Under HFIAA, the maximum deductible for a flood insurance policy will increase to $10,000 for single-family and two- to four-family dwellings. If used, the deductible must apply to both building and contents. For single-family homes, choosing the maximum deductible will result in up to a 40 percent discount from the base premium. It is important to remember that using the maximum deductible may not be appropriate in every financial circumstance and may not be allowed by lenders to meet mandatory purchase requirements.

The Federal Policy Fee under HFIAA will increase by $1 for most policies. The fee for policies rated using the map change table will increase to $45. The fee for Preferred Risk Policies will remain $22.

Since the NFIP is in the process of implementing HFIAA-mandated reforms, the final picture is still a bit blurry. However, since floods are not only common, but costly, the need for flood insurance is quite clear.

If you have any questions or would like to learn more about protecting your homes, please contact us.

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