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.