Our best advice: Avoid owning a property that requires flood insurance.
If you already own a property, try to find a way to appeal the flood zone, become exempt or find way(s) to reduce the cost of flood insurance for you and future owners. Consider a private market flood policy.
If you’re considering buying, realize that FEMA is $24 BILLION in debt and your premiums may increase 15% to 18% a year for many years. Figure how that will affect the re-sale market value of the property. Set your smartphone for storm warnings. Even a very substantial discount may not make this purchase a good idea. Don’t let this purchase be your financial ruin! Ask advice of the smartest financial adviser you can find. Buyer beware!!!
Here are some NFIP Basics that all property owners should know.
The three reasons flood insurance is required.
We have found there are only three reasons flood insurance is required. Be sure you know which of these reasons apply in your situation.
- If a structure is in a Special Flood Hazard Area (SFHA), a Federally backed lender requires flood insurance. A flood zone beginning with the letter A or V indicates the high risk Special Flood Hazard Area.
- If you agree to carry flood insurance as a condition in your loan agreement, no matter which flood zone your structure is in. A structure in Flood zone D (for unDetermined risk) is often required by a lender to carry flood insurance.
- When property owners receive financial assistance from the federal government following a presidentially declared disaster, they may be required to purchase flood insurance coverage – in perpetuity! See this pdf.
Here are the 6 flood zones.
- Flood zone A = “A” high risk = Special Flood Hazard Area = SFHA = 1% chance of flood = previously known as 100 year flood zone. Flood insurance is required on a structure in a SFHA when there is a federally backed lender, according to federal banking law. Applicable to all zones that begin with the letter A: AE, A1…A30, AO, etc.
- Flood zone V. Coastal areas in the US have a Special Flood Hazard Area called flood zone V. (Think Velocity waves.) Flood insurance is required on a structure in flood zone V when there is a federally backed lender. Applicable to all zones that begin with the letter V: VE, V1…V30, VO, etc. Zone V rates are even more expensive than zone A.
- Zone D are areas of unDetermined Risk. For example, FEMA is currently studying whether areas behind an uncertified levee, which has an unDetermined risk, should be classified as a Zone D.
- Flood zones B and C. These are areas of Moderate risk = .2% chance of flood = previously known as the 500 year flood zone. Zone B is riskier than zone C
- Flood zone X. Areas of Low risk = less than .2% chance of flooding every year.
The most common sets of rates:
- Zone A rates are the expensive rates, for inland high-risk Special Flood Hazard Areas.
- Zone V rates are for coastal high-risk Special Flood Hazard Areas and are even more expensive than zone A rates.
- Zone B, C and X rates are for moderate and low-risk areas. These B, C and X rates all use the same rates.
- The Preferred Risk Program has the least expensive rates. This is a package of building and contents coverage, for moderate and low-risk properties (zones B, C and X) with no or limited previous flood losses.
- The Newly Mapped into a Special Flood Hazard Area after October 1, 2008 Program, previously known as the Preferred Risk Program Eligibility Extension. This is a package of building and contents coverage, for properties with no or limited previous flood losses, where a flood map effective on or after Oct 1, 2008 maps a property as being in a Special Flood Hazard Area. Effective Apr 1, 2015, the rates for this program will transition from one year at the old zone’s rating, then to a special rating table that starts off similar to the Preferred Risk Program, with a slight increase, and then to sizeable annual rate increases due to the increased hazard.
- Elevation rating. 1) If in a Special Flood Hazard Area (zone A / zone V) and 2) if you obtain an Elevation Certificate that shows your lowest rated floor is equal to or above the Base Flood Elevation (BFE), rates are cheaper than zone A /zone V. If you install “proper venting” in a crawl space or garage, that area can sometimes be ignored for rating purposes, thereby raising the “lowest rating floor”, to reduce rates. Discuss this with a knowledgeable authority (flood plain manager, professional engineer, FEMA rep, licensed surveyor, etc). If your lowest rating floor is one to two feet below the Base Flood Elevation, expect very expensive rates.
- Submit for Rate. Unpublished rates for those in a Special Flood Hazard Area (zone A / zone V) that require Elevation rating – details must be submitted in order to determine an individual property’s rate. For example, if your lowest rating floor is over two feet below the Base Flood Elevation.
- The Mortgage Portfolio Protection Policy (MP3) A lender can force-place a required flood policy with these super expensive rates and add the premium to your loan balance. Avoid by promptly obtaining your own flood policy from a knowledgeable registered insurance agent.
- Zone D rates are for areas of unDetermined risk. The rates for structures built before their community’s original Flood Insurance Rate Map (pre-FIRM) are usually the same as the expensive Zone A rates.
- Tentative rates are used when you need to close on a purchase immediately and insufficient information is available to obtain a correct rate before closing.
Grandfathered rating explained.
This means rating a flood insurance policy with the less expensive prior zone and/or Base Flood Elevation. For example, the current zone is A and the prior zone was X. Or current zone is V and the prior zone was A or X. There are two categories.
- Category 1. Built-in-Compliance with the zone, or elevation, in effect when built or a prior flood map. For example, the community’s original flood map in 1980 showed zone X. The structure was built some years later, while in zone X. A new flood map shows the structure is now in zone A. No major improvements/expansions or losses since the new map was adopted; this qualifies for the prior flood zone rate, zone X.
- Category 2. Continuous coverage. A flood policy was purchased before the new map was adopted. A new map placed the structure into a higher risk flood zone. As long as the policy is never cancelled, and no major improvements/expansions or losses, it will renew with the prior zone rating.* What a savings!
Note: Not applicable if the new zone is zone D.
- Grandfathered rating policies have these important characteristics: changes can be made to the building (& contents) limits, deductible(s), mortgage info, and the owner of the policy. See “Assignment” below.
“Assignment” of a policy explained.
In some situations, your flood policy can be ASSIGNED TO (taken over by) the next owner. Passing on this lower cost flood policy to the next owner increases the market value of your property. At other times, the assigned policy will need to be re-rated, to different and more expensive rates.
* The Biggert-Waters Reform Act of 2012 requires numerous changes for the NFIP. New regulations will start to be implemented on October 1, 2013. Read about the changes here.
In March 2014, many changes were made by the Homeowners Flood Insurance Affordability Act to the Biggert-Waters Reform Act of 2012!!! “Biggert Waters 2012 Act to be reformed with many changes to curb flood insurance rate hikes.” Here is a link to read about House Bill 3070 that the President has signed. www.insurancejournal.com/news/national/2014/03/13/323273.htm
“Dan King and the Thill-Demerly team helped guide me to the best solution for my flood insurance requirement situation. I thought I had run out of options. I was fed up with trying to understand the confusing landscape of flood insurance requirements. Until I spoke to Dan, I felt there was no one out there who I could trust to be looking out for my interests. Dan explained how I was on the wrong track in trying to reduce my flood premium. I was eventually successful in reducing my flood premium from $2647 to $1072. I can honestly say that I would never have reached this positive situation on my own. My family and I are grateful to Dan for his enthusiastic help.”
“Dan’s knowledge about flood insurance gave us the reassurance we needed to move ahead with our home purchase. We’d checked with two local agents and got one $1200 quote and one $3800 quote. Dan’s recommendations resulted in a final flood insurance rate of $393. Thanks Dan.”