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All You Ever Wanted to Know About Insurance

Flood rates on the rise

In light of the the May 9, 2013 Boston Globe article the Boston Globe regarding flood insurance premiums, here is a primer on flood insurance in Massachusetts:

The article states the federal flood insurance program is $20 billion in debt, which can be attributed to the many catastrophic floods in the United States over the last ten years.  Given this massive debt and the fact that many, if not most, flood insurance premiums are subsidized, premiums must increase to make the flood program sustainable in the long term.  As a result, flood premiums will increase in higher risk zones and for secondary homes.

Our agency will often hear a client say, "our home is not in a flood zone."  What they mean is their property is not in a higher risk zone.  However, every property is in a flood zone with certain zones more prone to flooding than others. Mortgage lenders require flood insurance if a property is in a higher risk zone.  However, as we have seen in recent years, flooding can and does occur in lower risk zones. 

Flood insurance should be considered by all property owners, regardless of whether or not it is required by their lender.  Property owners in lower risk zones will find flood insurance premiums quite reasonable.  In fact, if a property is in a lower risk zone, $250,000 of coverage may be obtained for $475.  Lower coverage available at a lower premium.

The federal government (FEMA) backs the federal flood program and has subsidized rates historically.  If the flood insurance market was truly competitive, the actuarially derived flood rates would be much higher.  FEMA is trying to transition from the current rates which are artificially low to a more sustainable rating model.  The responsibility of paying flood premium will transition to some extent from taxpayers to the property owners.