Thursday, 23 March 2017

Preferred risk flood insurance and home insurance

The National Flood Insurance Program, which assumes the role of default insurer when a private insurer refuses to cover against damage that has resulted from flooding, has been run by the Federal Emergency Management Agency, under the general remit of the Department of Homeland Security. Since the private insurers are for profit and have found it difficult to maintain the usual percentage return, the government has been forced to step in for two reasons. Far more houses than prudent have been built in flood prone areas, and despite the protests of the climate change deniers, we’ve been getting a lot more flooding than usual over the last decade.

FEMA is therefore going to extend eligibility under the Preferred Risk Policy. Anyone holding this policy can continue paying the lower premium rates until the evaluation under the Biggert-Waters Flood Insurance Reform Act of 2012 has been completed. In practical terms, this means at least two more years of lower home insurance premiums with the full-risk ratings deferred. This is very important because the flooding map was redrawn in 2008 and both home owners and renters had been at risk of significantly higher premiums if they lived in the newly declared high risk areas.

So everything now comes down to your claims history. If you have made two or more claims or one claim has been for more than $1,000, you are not eligible for the preferred risk cover. The benefit may not sound great but your premium increases cannot exceed 13%. This keeps your insurance rate significantly below the full-risk home insurance premium.

To give you a better grasp of the benefits, you might live in an area with aging flood defenses or where there have been changes to the lay of the land. In theory, this should mean you pay the full-risk rate. But if you can take advantage of the Grandfather Rule, you may get cover for home and contents for as little as $129 in the first year. You will know this represents a big saving on the usual home insurance rates so check what has happened to your local map and whether the Rule will save you money.