Everyone buys home insurance but homeowners resist purchasing flood insurance unless forced to do so by a mortgage company. These decisions and requirements are based on flood plans and flood prone areas as determined by local entities. Most homeowners do not realize that water damage due to flooding is not covered under a general homeowner’s policy. It is only after a natural disaster strikes that the homeowner realizes they are not covered.
When surveying an area, even a year or more after a disaster has occurred, it becomes clear which homeowners had insurance and which ones did not. This creates a problem for the entire community. As the insured homes are repaired, replaced and improved, other homes sit, abandoned and empty. This creates neighborhood issues from wild animals encroaching the area to crime and trespassing concerns. For the government it creates additional costs as temporary housing, often provided at a cost to taxpayers, lingers on for years because the homeowner does not have the funds to repair or replace the damaged home.
Homeowner Flood Insurance Affordability Act
Recently the US House of Representatives passed a bill that will provide more certainty with regard to premiums and coverage in the Homeowner Flood Insurance Affordability Act. This act provides a more predictable rate structure for homeowners. The other issue it addresses is flood maps and creates more accurate mapping along with reimbursement of premiums if flood map appeals are won. The bill will reinstate exemptions for basements in 53 communities that are built in a manner that is deemed flood-proof. The bill also addresses rate increases that occur when homes are sold.
This bill, will provide stability to the market of flood insurance. Since rates are a critical piece of flood insurance, providing new parameters around rate increases will benefit home sellers and buyers alike. It will also provide more affordability of flood policies. With the proper marketing efforts the National Flood Insurance Program (NFIP) should be able to increase the number of policies and spread the risk across a greater number of policy holders.
With the number of natural disasters on the rise, it is important for homeowners to have the proper coverage on their home investment. When homeowners have the appropriate amount of insurance and the right coverage for the risks in their area, it increases the economic stability of the area.
Insurance companies have a tendency to sharply raise rates, when events occur, in order to cover their payouts. In the case of the National Flood Insurance Program, this has resulted in the decline of home values and has created a market where it is difficult to sell homes due to high insurance premiums. By removing FEMA’s ability to increase rates to unrealistic levels when homes are sold after a disaster, this bill will stabilize these markets. It builds in predictable increases that phase in risk based premiums, rather than at the sale of the home.
These changes will stabilize the NFIP along with providing relief for home owners and home buyers immediately.
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