For those of us who live in coastal communities, flood insurance is a must. Mortgage companies require flood insurance for homes that are located within a flood zone. But, even if your home doesn't require flood insurance, it is a good idea to consider. Here in Houston, areas that never flooded before have been know to flood in an especially bad storm. And recent storms in Central Texas that have flooded portions of Austin, have residents considering flood insurance for the first time. If you don't have flood insurance, your homeowner's policy will not cover the damage.
Finding a knowledgeable insurance agent is the first step to deciding which coverage is best for your home. He or she can walk you through terminology such as Actual Cash Value (ACV), Base Flood Elevation (BFE) and Flood Insurance Rate Map (FIRM) and explain certain rules and requirements. Agents typically sell policies that come from the National Flood Insurance Program (NFIP). Although agents will tell you that rates are set by this agency and do not differ, I have been able to find quotes that are different. Getting two to three quotes is always a good idea so that you can obtain the best price. Rates do depend on several factors, including the age and type of construction of the home and the level of risk associated with you neighborhood. For those of us living within a flood zone, there will be higher premiums than for those who live in low-risk areas and qualify for a Preferred Risk Policy (PRP).
Once you have purchased the policy, keep in mind that there is a 30 day waiting period before coverage goes into effect. You must also pay for the entire year, but the NFIP accepts checks and credit cards.
In addition to flood policies, you should check the need for Windstorm and Hail coverage. Here along the Texas coast, it may not be covered as part of your homeowner's policy. This type of coverage may be purchased through the Texas Windstorm Insurance Association (TWIA). Ask you agent about this coverage when implementing your flood policy. And remember, that Windstorm and Hail coverage cannot be bought or changed after a hurricane enters the Gulf of Mexico.
The final point to consider is a relatively new one. The Biggart-Waters Flood Insurance Reform Act of 2012 (BW-12) required the NFIP to raise insurance rates for some older properties in high-risk areas to reflect true flood risk. The "grandfathered" rates will end in 2014. Rates would then increase each year by 20 percent for five years.
The first policies to experience 25 percent increases would be non-primary residences (like investments), businesses, and properties with severe repetitive losses. Four percent of policy holders, including condos and multi-family properties bought before the Flood Insurance Rate Map would not see immediate increases in premiums. The vast majority of policy holders (81 percent) would not be affected until the property is sold to a new owner. This may not sound too bad, but I had a recent listing that was affected by this looming legislation. Obtaining flood insurance was difficult and expensive and it could have potentially derailed the sale of the home.
In response the (BW-12), bills have been introduced to protect coastal homeowners from being overwhelmed with premium increases. This legislation would provide relief to homeowners who built in low-lying areas before the updated flood maps and it would delay premium increases. It would also require flood maps to fully reflect local investments in flood protection infrastructure. This is a very important piece of the legislation, as it would potentially prevent radical increases in communities, such as Houston, which have spent millions of dollars in flood abatement.
Now that hurricane season is winding down, it is a good time to speak with an insurance agent about the type of coverage you should have for your most important investment. And remember, you may not need flood insurance, but its always a good idea to be prepared.
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