The First Change To This Insurance In 50 Years And How Covid-19 Could Impact Your Homeowner's Policy
Talking about insurance at a dinner party isn't going to make you any new friends, but sharing information that can save people money and headache could make you the most popular person in the room.
With that in mind, we wanted to share with you about the some major changes that FEMA (Federal Emergency Management Agency) is making to the National Flood Insurance Program, also known as NFIP.
The federal flood insurance program is making the first changes to its risk rating formula in over 50-years. But, why should you care?
According to experts, 46% of Indiana residents who currently have flood insurance can expect a decrease in their annual premium when their policy renews, while 47% can expect a small increase. But experts are expecting that 7% of flood insurance policies will see a dramatic increase in premiums due to these upcoming changes. That could translate into thousands of dollars in added cost to insure your home.
Here are a few things to consider:
- Per FEMA. the current system calculates rates "predominantly based on relatively static measurements, emphasizing a property’s elevation within a zone on a Flood Insurance Rate Map (FIRM). In other words, the proximity of your house to the perceived water risk (i.e. river, ocean, creek, etc.) determines your insurance rate.
- Under the current formula, homeowners with the same risk assessment paid approximately the same insurance rate regardless of the value of the home being insured. Which means homes of greater value that cost more to repair when damaged by flood, have approximately the same insurance rate as homes of lesser value that cost less to repair.
- Under the current formula, the program paid out significantly more money in claims than it collected in insurance premiums often leaving taxpayers as a whole on the hook for paying the difference.
- Under the current formula the plan essentially went bankrupt and needed a bailout from congress to rescue it ... i.e. taxpayer dollars.
- Under the new plan, FEMA states that, "Risk Rating 2.0 enables FEMA to set rates that are fairer and ensures rate increases and decreases are both equitable." In other words, their intent is to have homeowners pay their "fair share" based on the risk of their property with the goal of making the plan solvent and sustainable long term.
Whether your property is in a floodplain or not, this change should ultimately save you, Mr. and Mrs. Taxpayer, money over the long haul by having property owners in high risk areas pay rates that correlate to their higher flood risk instead of having lower risk properties subsidize their rate. This again, should result in less chance of having taxpayers bailout the NFIP when floods do strike.
We interviewed Southern Indiana insurance expert, Daniel Dieterlen with Innovators Insurance, to get his take on these upcoming changes and how they might impact local residents.
If you want to learn more about the upcoming changes of Risk Rating 2.0, you can visit FEMA's website here: https://www.fema.gov/flood-insurance/risk-rating
A group called First Street Foundation, has attempted to replicate how they believe FEMA's new rating system will work. On their website they will allow you to check what they call your property's "Flood Factor". You can check it for free here: https://firststreet.org/flood-factor
In addition to the flood insurance changes, we asked Daniel about how Covid-19 has impacted homeowners insurance. With lock downs, quarantines, or work from home scenarios becoming the theme of the day, we have seen a dramatic increase in home improvements as homeowner's attempt to make their houses more functional and fun as they spend more time in them.
Many of those improvements add value to the home that may not be accounted for in your current insurance policy.
Couple that with the broad rise in property values across Southern Indiana and you get homes and homeowners who may likely be under-insured.
In the event of catastrophic damage to your home, it's important that you have insurance to protect you from a catastrophic financial loss as well.
As Daniel shared, "[insurance is] not super exciting, but when you need it, you hope you have what you need."
Daniel recommends connecting with your insurance agent if you've recently made improvements to your home and at least once a year to review your policy to make sure your home hasn't outgrown it's coverage.
For more information or to schedule a meeting with Daniel and his team, visit them at https://www.innovatorsinsurance.com.
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