The reauthorization last year of the National Flood Insurance Program (NFIP) made a big change to flood insurance rates by gradually ending federal subsidies for flood insurance. Yes, the differences are significant for some homeowners who received subsidies, yet most people did not receive subsidies in the first place.
Even so, if you are buying or selling real estate whether or not flood subsidies are involved, you must be vigilant about disclosures covering whether or not a property lies in a Flood Zone. Sellers must disclose the details of any applicable flood insurance. Buyers must investigate the availability and cost of insurance.
Older homes in flood zones benefited from subsidies that kept flood insurance rates low, and the owners of these properties will begin to see a more expensive situation when annual rates increase as much as 25% starting next month. The increase includes a fee to build a reserve fund. If your payment is late, then you can lose the entire subsidy.
In Sarasota County, 18,770 policyholders are affected by the tapering off of the federal subsidies. That’s 28 percent of the 68,201 total flood insurance policies in force in the county. About 72 percent of flood insurance policies in the county are full freight and therefore unaffected by the NFIP changes.
Nationwide more than 80 percent of policyholders nationwide (e.g., 4.48 million of the 5.6 million policies in force) do not pay subsidized rates and only a portion of the 20 percent that do benefit from subsidized NFIP rates will see increases.
The first increase affects policyholders with non-primary residences and/or those with severe repetitive loss properties. The properties most impacted are in Special Flood Hazard Areas (SFHA).
Nevertheless the takeaway is to pay attention when making disclosures or performing due diligence for a particular property. If a seller has a flood insurance subsidy, then that subsidy ends upon the sale of the residence.
Bottom line: Contact your insurance agent to find out how the changes to NFIP affect you.
Screenshot taken September 12, 2013 courtesy of the Federal Emergency Management Agency (FEMA). The box shows NFIP Policyholders: Total Number of Subsidized Policies by State and County (as of 12/31/2012). Subsidized policyholders are NFIP policyholders with pre-FIRM subsidies removed by Section 100205 of the Biggert Waters Flood Insurance Reform Act of 2012.
For more information about Sarasota & Her Islands, please contact Louis Wery.