Flood insurance rates will soar for many
With the state and region battered by recent storms and more likely on the way before summer is over, the state’s top financial regulator advises consumers to check their home and auto insurance policies.
For homeowners, who have or are considering flood insurance, they need to be aware that the cost of that insurance is about to increase dramatically, said Susan Donegan, commissioner of the Department of Financial Regulation.
In addition to fire and theft, a standard homeowner’s policy will cover some types of storm damage.
“What we say is we like wind, we don’t like water,” Donegan said.
And by that Donegan meant a standard homeowner’s policy will cover lightning or wind damage, such as a tree falling against the house or a roof that’s blown off.
She said water damage is a whole other story.
“Once you’ve got water in the picture a lot of damage becomes excluded because it becomes flood or water damage,” Donegan said.
There are exceptions that are covered. Water damage that is wind-related, such as a hole in a roof or a shattered window, or damage caused by frozen water pipes that burst is covered.
But Donegan said most water damage is covered by flood insurance, which must be purchased separately.
And the cost of flood insurance is about to rise dramatically over the next several years.
In the aftermath of Hurricane Katrina and several other major storms, the National Flood Insurance Program (www.floodsmart.gov) ran up a mounting deficit. When Congress reauthorized the program a provision in the Biggert-Waters Flood Insurance Reform Act of 2012 was aimed at stemming the program’s losses.
“A lot of it was subsidized by the federal government and they’re doing a five-year phase-in of getting rid of those subsidies,” said Paul Gladding of Holden Insurance in Rutland.
What that means, Donegan added, is that, “People are going to see huge jumps in flood insurance premiums over the next couple of years.”
Homeowners in high-risk areas for flooding already pay hefty premiums to cover the structure and contents. And someone with a mortgage who lives in a high-risk area is usually required by their lender to carry flood insurance on the building, Donegan said.
According to FEMA, which administers the program, approximately 20 percent of all flood policyholders nationwide pay subsidized rates. It’s those policyholders who will experience a jump in their premiums while the riskiest properties will see even greater sticker shock.
“Only a portion of those policies that are currently paying subsidized premiums will see larger premium increases of 25 percent annually starting this year, until their premiums are full-risk premiums,” FEMA announced on its website.
Many other policyholders will be paying more as well. With the exception of property owners in Preferred Risk Zones, at minimum risk for flooding, all other policyholders will pay a 5 percent fee on their premiums to cover the Reserve Fund assessment. However, the Reserve Fund will increase over time and at some point the fee will also be assessed on preferred risk properties, FEMA said.
In the future, additional changes to premium rates will occur once remapping of local flood areas is done.
According to the Vermont Division of Emergency Management and Homeland Security, only 2 percent to 3 percent of property owners in the state have flood insurance, As of April 30, FEMA reported 4,504 flood policies in the state with 2,808 policyholders located in high-risk areas for flooding.
The areas of high repetitive loss include, Lyndonville, St Johnsbury, Brattleboro, Barre City, Montpelier and Hardwick,
In 2011 following Tropical Storm Irene, the National Flood Insurance Program paid out $51.7 million to Vermont homeowners and businesses. Only six other states received greater payouts than Vermont that year.
National flood insurance is purchased through a local insurance agency. But Gladding said unlike other insurance the premiums for flood insurance don’t vary from agent to agent because the rates are set by the federal government.
Gladding also advised homeowners to make sure their homes are insured for the replacement value — not the market value — “which is dramatically more than what they could sell it for.”
For example, he said a $150,000 home could cost $300,000 to rebuild.
As far as the contents, he said that’s insured as a percentage of the home’s value, anywhere from 50 percent to 70 percent.
Wind-related damage caused by a falling tree will also cover tree removal and disposal. If there is no property damage, tree removal is not typically covered, Gladding said.
He said his agency, which covers Rutland, Addison and Chittenden counties, had a few claims from last week’s storm. And with more inclement weather forecast, Gladding said he’s likely to see more claims.
A quick way to check what a policy covers is to look at the first page or what’s called the declaration page.
“It just outlines the different kinds of coverage and deductibles and exclusions and things like that,” Donegan said. “So that gives you a sense of what you have.”
Although it’s quite affordable, both Donegan and Gladding said most Vermonters who rent do not have renter’s insurance.
Gladding said a $25,000 policy costs on average between $120 and $150 a year.
“So you’re looking at 10 to 12 bucks a month,” he said.
For car owners, comprehensive coverage will pay for fire, theft, vandalism, glass breakage, and storm-related damage.
Donegan said the National Association of Insurance Commissioners has a useful website (www.insureuonline.org/home_inventory_page.htm) where homeowners and renters can download a home inventory checklist. There’s also WreckCheck, a checklist in case of a car accident.
The checklists can be downloaded and printed. There are also apps for iPhone and Android users.
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