Flood Insurance - Who Needs It?

Flood insurance - who needs it? Basically everybody! Here are some facts on why I make that statement.

According to the National Flood Insurance Program, within the timeframe of a 30 year mortgage a homeowner has only a 9% chance of making a fire damage claim but a 26% chance of making a claim for flood damage! Pretty striking statistics, wouldn't you say?

If you read my post yesterday on the Flood Insurance Changes going into effect on October 1, 2013, you know that the price increases are astronomical! If you own a little home priced at about $120,000 in flood zone X, a zone that does not need flood insurance, your annual premium right now for flood insurance would be about $310. After October 1 that same premium would be approximately $1310!!! And that is in an area that is designated NOT a flood zone!

Look at the flooding that took place across our nation this summer alone! With the banks of rivers overflowing and flash floods in places like Missouri, Oklahoma, Tennessee, New York and Arkansas, it isn't just those homeowners along the seashores that need flood insurance. It only makes sense to have this coverage if you can afford it.

With the new changes passed by Congress in the Biggert Waters Flood Insurance Reform, homeowners who purchase homes requiring flood insurance to get their mortgage will have to pay these enormous annual premiums at time of closing. This will mean that many people will walk from the closing table since they simply cannot come up with that kind of money. Remember, my example before was a little home that is NOT in a flood zone. This is going to make it more difficult for sellers to find buyers for their homes as well as putting an extreme burden on current homeowners to pay their annual flood insurance. The good news is that for current homeowners who have flood insurance policies, it is a gradual increase - unless you let your policy lapse. Then you get hit with the full premium adjustment!

While I understand the need for the reform in flood insurance premiums, I find that these increases are simply too much in too short a time span. It is going to be very difficult in many areas for homeowners! We shall see if Congress makes adjustments to this new insurance reform down the road when enough people complain to their elected representatives. Right now there isn't much going on since it seems most of the population is unaware of what is coming just around the corner.

 

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Peter Gibaud Team 08/30/2013 12:58 AM
  2. WALTER SMITH 08/30/2013 02:06 AM
  3. M.C. Dwyer 08/31/2013 07:40 AM
  4. Winston Heverly 11/11/2013 09:12 PM
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Ambassador
4,301,228
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Barbara-jo, I am just wondering why there is no resistance from anyone on this phenomenal increase in price. (Usually I get the flood cert for the home my buyers are planning to buy)

Aug 30, 2013 02:57 PM #44
Rainmaker
3,238,224
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Barbara Jo it is clear to me that the buyers, sellers and Realtors are sleeping at the wheels to get this passed by the legislature:), Endre

Aug 30, 2013 03:18 PM #45
Rainmaker
615,686
Mike Young
203kOnLine.com, covering the USA - Las Vegas, NV
FHA 203k Consultant 916-758-1809

I purchased two homes in Tonopah NV years ago and they made me purchase flood insurance. It was flat as far as you could see except for the very large empty river bed that could hold thousands of acre feet of water... my houses were above grade by at least three feet... $600 per year just in case... it would have been hilarious if it wasn't my money. Oh, and no record of it ever flooding there since they cut that river bed into the valley.

Aug 30, 2013 04:53 PM #46
Rainmaker
1,369,533
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566
Wow, good reblog this coming week. I love your redesign at the bottom of your post!
Aug 30, 2013 10:28 PM #47
Rainmaker
2,283,966
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

It is very clear that the FED has decided to start making money instead of losing money or being underfunded. Unfortunately some of the costs are getting totally out of hand.

Lot a transaction recently, as the buyers were unaware that the property they were purchasing was now in a flood zone.

Make it a great weekend!

Aug 30, 2013 11:27 PM #48
Rainer
405,683
Brad MacKenzie
Brad MacKenzie - Duxbury, MA
Turning Houses into Homes on the South Shore

This is a big issue. Our FEMA maps have been redrawn. Many properties are now in flood zones and now require insurance if there's a mortgage on the property. Some policies are transferable upon sale, with grandfathered premiums.

Aug 31, 2013 12:48 AM #49
Rainmaker
370,513
Travis "the SOLD man" Parker; Associate Broker
iXL Real Estate-Wiregrasss\ - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

Lost a sale of a house that was - was not - was - was not - and finally, just 3 days before Closing WAS in a Flood Zone. Insurance knocked it out of Buyer's approved range. With the NEW rules, that house may sit empty for awhile!!

Aug 31, 2013 01:23 AM #50
Rainmaker
848,657
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Barbara-Jo, if you are on a coast or have a basement we certainly agree.  But much of Marion County is high and dry and nothing but sand.

Aug 31, 2013 01:55 AM #51
Rainmaker
1,558,894
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Well, because Congress got involved mean's it's going to cost more for everyone.  I really wonder if it is really necessary or because of all the unusual weather people think they now need it.

Aug 31, 2013 03:17 AM #52
Ambassador
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Well there's some great news.  (eye roll)  I purchased flood insurance for my home that is not in a flood zone after watching what happened when it rained six days straight to to the water management area beside my home.  I'll keep paying it though.  I certainly can't afford the damage should it ever happen.

Aug 31, 2013 03:20 AM #53
Rainer
288,771
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

If you are in a flood zone, its mandatory to get Mortgage financing

Aug 31, 2013 05:46 AM #54
Rainmaker
384,034
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
MC Dwyer-Santa Cruz Mountains Property Specialist

Hi Barbara-Jo,

I'd like to re-blog this because I hadn't caught that there was another change coming down the river this October.    It's definitely important for buyers and sellers to be aware of this, as FEMA is re-drawing their maps.

Aug 31, 2013 07:38 AM #55
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Joni Bailey
101 Main St. Realty - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

FEMA re drew the maps around here to include just about any home that is waterfront. 

Aug 31, 2013 08:22 AM #56
Rainer
506,404
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Barbara-Jo,

Interesting that there are so many more floods than fires. Did not know that. One thing that people can do to avoid floods is to put one of those recycled tire door mats over the drain to the outside basement entrance. That keeps the leaves off the drain holes and the water from rising over the threshold to the basement. Most entrances are basically the size of a shower pan & the water can rise quickly during heavy rains, especially if it is not draining properly. If prices for flood insurance are so high, it might make sense to save the money yourself in a dedicated account and take precautions, unless you are in an easily innundated area.

Aug 31, 2013 01:22 PM #57
Rainer
484,339
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Why would anybody even consider buying a home located in a flood zone? I can imagine many more opportunities to invest or save those premiums by avoiding any area that has a potential for a flood. At $1,300. annually, that's $26k in 20 years. I can do a lot with $26k and self insure my home against flood.

A homeowner could pay down his principal one hundred dollars every month for twenty years and reduce his mortgage principal substantially and eliminate a portion of his mortgage interest. That's just one example to utilize the flood premium. 

Aug 31, 2013 03:20 PM #58
Rainer
28,484
Matt Keough, New Castle County, DE
Patterson-Schwartz Real Estate - Wilmington, DE
Matt Keough Agent New Castle County Delaware

Oh my, thanks for the details.  Checking into this for clients I am working with as well as previous clients.

Thanks!  Hope we can do something to change the situation.

Sep 01, 2013 12:53 AM #59
Ambassador
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Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Thank you for all of the wonderful comments. 

Toni, while the insurance is always paid for the year at closing, many people are going to get sticker shock with the new prices and I am sure many will walk away because they cannot come up with all of that money. They are talking about some homes having flood insurance rates of 10k a year!!!!!! That is a hefty price tag!

Sep 01, 2013 04:18 AM #60
Rainmaker
1,431,497
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

It is not as common out here, but still needed in some places.  The issue here is EQ Insurance.  The coverage is so poor that unless you have significant equity some people choose to go without and let the bank take the risk.

Sep 04, 2013 02:25 AM #61
Ambassador
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Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

thanks for commenting, Gene

Sep 04, 2013 07:24 AM #62
Rainmaker
863,796
Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

Many aspects of the 2012 reform act have now been modified if not repealed altogether.

http://www.fema.gov/flood-insurance-reform

http://activerain.com/blogsview/4365261/flood-insurance-changes#17717751

Apr 04, 2014 08:08 AM #63
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