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What You Need to Know About Changes to Flood Insurance

By Mark Thayer

Sayer, Regan & Thayer, LLP


Rhode Island – the Ocean State - is defined by its relationship to the water. Many of our residents enjoy seaside homes that range from Newport mansions to Misquamicut vacation homes. But beautiful ocean vistas come with the threat of flooding due to rising tides and damaging storms. Which is the cue for the insurance industry to step in.

Regular homeowner’s insurance does not cover flooding. If your home is located in a designated flood plain area, your mortgage company or insurance carrier will likely require you to buy additional flood insurance.

For many years, in order to be covered, you needed a policy offered through the National Flood Insurance Program. The program offered the only flood insurance available to most Americans. Homeowners who live in areas that have a 1 percent chance of being inundated by flood waters in any given year must purchase flood insurance as a condition of having a federally backed mortgage.

However, premiums homeowners pay for coverage through the National Flood Insurance Program fall far short of the program’s expenditures, particularly following the devastation caused by Hurricane Harvey in the Houston area. The program was in danger of expiring at the end of July before being granted a four-month reprieve by Congress.

As a result, “A private flood insurance market is beginning to emerge for homes and businesses in existing flood zones. The effect of this development on the NFIP's monopoly on flood coverage here in the United States will be significant,” according to Geoff Gordon of Gordon Atlantic Insurance. “A private market will provide innovation and cost savings for many consumers in flood prone areas.  Ultimately this will lower costs for many property owners. But for others, watch out.&rdquo

“For example,” Gordon says, “consider two houses side by side, same age, same size and value, same exposure to a flood.  But one is a ‘primary’ home where the family lives full time, the other ‘secondary,’ a vacation home. The primary home pays less because a secondary homeowner presumably can afford higher prices.  Affordability is not a risk factor with catastrophe insurance. Thus, some properties are subsidized, while others are priced to subsidize other properties. Until now, the NFIP has had a monopoly on pricing: take it or leave it. Private insurance challenges all that.” Gordon cites some customers who reduced their premiums by 50 percent by switching to private flood insurance.

Flood insurance will not cover all costs. The National Flood Insurance Program caps property damage coverage at $250,000 and personal possessions coverage at $100,000, although some private flood insurance plans can extend coverage to higher levels. “Flooding” is also well defined as a natural phenomenon – you won’t be able to collect if your water heater leaks into the basement.

Areas defined as flood plains can be adjusted and changed, so you should check with your insurer to see if the area in which your home is located has been designated as a flood plain.

Mark Thayer, Esq. is Chairman of the Real Estate Department at Sayer, Regan & Thayer, LLP. He can be reached at 866-378-5836 or via email at mthayer@srt-law.com.

These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.

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