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First of all, keep in mind that
flood insurance is provided by the National Flood
Insurance Program (NFIP). No matter which insurance
company writes the policy, the actual insurer is NFIP.
(In other words, you and I, the American taxpayer.) As
long as its coverage is the same, and is calculated
correctly, the cost of a flood insurance policy will be
identical no matter which company writes it. If one
company claims they can “save you money” on
your flood insurance, it’s because they are reducing
the coverage. Be careful to check your new or
existing policy for contents coverage! Remember
that lenders only require that the HOUSE be insured, not
your personal possessions within. Sometimes buyers were
sold flood policies which only covered the house, only to
realize after a disaster that their contents were
uninsured. As you saw in part 1 of our
flood insurance series, we lost our house and everything inside
it. Contents coverage was a lifesaver. When flood insurance is required, its cost is determined first by the flood zone in which the property is located. If it’s in a lower risk zone such as B, X500, C, or X, the rates are determined by a straightforward chart, based on coverage amounts. That chart is located here. When located in a Special Flood Hazard Area (SFHA) such as zone A or AE, the cost is determined not only by the amount of coverage, but by the elevation of your house compared to the base flood elevation (BFE) for the immediate surroundings. In general, the higher your property is above the BFE, the lower your insurance rate. (For an explanation of the flood zone codes, BFE, etc, see part 2 of our series.) To see how this works: Suppose the elevation of your house, which is calculated from the lowest floor surface of the living area, is 50.8’ above sea level, and the BFE is 50’. That makes your house 0.8’ above BFE. Rounded to the nearest foot, it would be considered a +1’ for insurance purposes. If the house were instead at 50.1’ above sea level, it would round to 50.0’, which a +0’, or even with BFE. Anything lower than BFE causes the rates to skyrocket. This is understandable, because a house that lies below BFE is lower than the predicted level of the floodwaters should a flood occur. It is true that some houses which lie below BFE have never flooded, and may never flood. However, insurance is based upon risk probabilities, and that is what we must deal with. A couple of our clients had homes which fell below BFE due to map changes (more on that next time) and their flood insurance premiums rose to $3,000 - $4,000 per year! This is a huge financial burden for the homeowner, and an enormous obstacle for potential buyers. Besides the cost and higher risk for a house which lies below base flood elevation, such homes are not eligible for financing with a USDA Rural Development (RD) loan. RD will finance houses located in a SFHA (“flood zone”) but NOT if they lie below grade. The elevation of a house is determined by a surveyor. They measure the height of the lowest floor surface of the living area and compare it to the BFE for that location. The document generated is called a Flood Elevation Certificate. Be very wary of multi-level houses, homes with enclosed carports/garages, sunken living rooms, etc. Although they often measure from the top of the slab outside, surveyors are supposed to find and use the lowest spot to calculate the elevation. If they do so, such lower areas could make a HUGE difference in the flood insurance premium. Next time we’ll talk about how maps can change, how to deal with those changes, and the looming Biggert-Waters Act, which may have drastic effects on flood coverage for many homeowners. Greg and Danielle |
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