Category Archives: FLOOD INSURANCE

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Flood Insurance: Government (NFIP) vs Private

Typically a person gets flood insurance to cover some costs of flood induced damage to your home and other personal items.There are two types of flood insurance, government flood insurance and private flood insurance. For the most part, flood insurance is insured by the National Flood Insurance Program (NFIP) and is managed by FEMA, but some people go a different path and get private flood insurance.

NFIP (FEMA) Flood Insurance

Some of the reasons to get federal flood insurance include its wide range of availability, and the reliable coverage. The downsides include, not being able to get coverage if you have to flee your house and relocate, and your claim is usually limited to $250,000 for personal residences and $100,000 for contents. It is important to note that flood insurance has two different parts – dwelling and contents – and they MUST be purchaesd seperately.

How much does it cost? Well that depends on where you live and where your property is on the FEMA Flood maps. However, if you do purchase a FEMA flood insurance policy it will cost the same no matter where you get it. The cost does not differ from agency to agency. It is solely based on the address of your property you are trying to insure.

Private Flood Insurance

The pros of private flood insurance are being able to claim over $250,000, and getting coverage for your additional living expenses if needed. For example, if you have to move out of your property after a flood for renovations, some or all of those costs may be covered. Another benefit is the waiting time for your policy to take effect: 15 days for private insurance vs. the 30 day waiting period required for NFIP insurance.

The cons to private insurance however are your insurance company denying to renew your flood insurance policy if you are deemed too risky, and it not being available to everyone. In contrast NFIP insurance can not cancel your flood policy, buy may raise the rates based on how many and how much you claim for a flooding evert.

Floods can happen anywhere — just one inch of floodwater can cause up to $25,000 in damage. Most homeowners insurance does not cover flood damage. Flood insurance is a separate policy that can cover buildings, the contents in a building, or both, so it is important to protect your most important financial assets — your home, your business, your possessions.

FEMA

Top 10 Tax Tips for Deducting Losses From a Disaster

“If you suffer damage to your home or personal property, you may be able to deduct these “casualty” losses on your federal income tax return. A casualty is a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism.” IRS

IRS Tax: Top 10 Tips for Deducting Losses from a Disaster

  1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
     
  2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
     
  3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.
     
  4. When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.
     
  5. Amount of loss.  You figure the amount of your loss using the following steps:
    • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
       
    • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
       
    • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.
  6. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.
     
  7. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
     
  8. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.
     
  9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.
     
  10. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

You can call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster area losses see Publication 547, Casualties, Disasters, and Thefts. You can get it and IRS tax forms on IRS.gov/forms at any time.

For more information visit the IRS site.

Brief History of Private Flood Insurance

JULY 2012 

Flood insurance is a hot topic at the moment, the product is in flux. When the  Biggert-Waters Act was signed into law  in 2012, it was met with criticism and concern. This law set to remedy the long standing subsidized flood insurance rates that had subsequently bankrupted FEMA to the tune of 20 BILLION dollars.

However, home owners cried foul and pleaded for mercy as their rates were about to dramtically spike. Stepping in to combat the rate hikes –  the introduction of private insurance. First seen in Florida, private flood insurance began spanning out across the country to include 15 states (as of this time).

Private insurance is written by Lloyd’s of London. Although they offer an alternative, with very competitive rates, my concern would be what happens if a catastrophic storm hits, àla Super Storm Sandy? If a private insurance company goes bankrupt – you could be out of luck in terms of receiving reimbursements.

If FEMA backed insurance accumulates too many losses, they dig into the money bags of the USA government. Whose likely to run out of money first? The entire goal of flood insurance, any insurance, is to make it self-sustaining. For that to happen, the rates must reflect the true risk involved.

March 2014

President Obama signs into law a Flood Insurance Relief Act.  In March of 2014, after much outcry from the constituents of flood weary states, the government backed down from it’s initial aggressive stance on curbing subsidized flood insurance rates. Essentially this law caps flood insurance premium rate hikes and passes on subsided rates to people buying homes in flood zones.

Flood insurance rates still need to be adjusted to better reflect the true risk of the home in a flood zone. Without it, people will continue to build, buy and live in a flood risk area, exposing the taxpayer to a significant burden. With the ever increasing rise in ocean levels, this is a real concern – for everybody.

July 2019

The flood insurance game is in a state of constant flux. As sea levels rise and flood events occur more frequently, the problem with flooding and insurance to off-set the damages associted with will continue to morph. See here for an informative article detailing the current state of private flood insurance vs. government backed NFIP flood insurance.

BEST SOLUTION 

I’m a big, big fan of house elevation for flood mitigation. Your house is protected, your insurance rates drop dramatically, and you move from being a part of the problem to a part of the solution. Without a doubt, it’s much easier said then done. Researchers, economists and lawmakers alike all favor this idea. The problem is implementing this expensive notion on a grand scale.

Just starting to rain ...

Just starting to rain …

A few hours later ... House across the street is deluged with flood water.

A few hours later … notice the fence and most of the bushes disappear underwater. 

If the above house were elevated, the only thing the home owner would need to do is move their car.

Flood Insurance Rates Drop Dramatically, But Not Without a Fight

TIMELINE OF INSURANCE RATE ADJUSTMENT  

June 2013

We officially started the construction phase of our house project. The planning phase began months earlier in July 2012. The planning phase entailed key details of the project such as how many feet we needed to lift our house, architectual drawings, acquiring necessary permits, etc.

December 2013  

We moved back into our house with the majority of our project complete. There were still a few items to knock out such as exterior painting and landscaping, but winter set in and those details were back-burnered until the spring.

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February 2014 

All paperwork and certificates related to our building project were closed out. Project officially declared complete. (Still lacking minor details such as exterior painting and any landscaping, but too cold to address those issues now).

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March 2014

Submitted request to FEMA (umbrella under which the National Flood Insurance Agency operates) to lower our insurance premiums based on our new and improved flood savvy house. They rejected this request citing we required one additional flood vent. So, we had one additional flood vent installed.

FEMA again rejected our request to lower our rates. This time it was because the wrong box had been checked on our elevation certificate (final survey) sighting the source of our base flood elevation level. In other words, they needed to confirm that we didn’t  just make up some numbers to make it sound good.

Skip this section if your eyes start to roll back in your head or you suddenly feel like you need to  nap. The source of the base flood elevation (BFE) MUST come from FIS or FIRM (Flood Insurance Rate Map) for your specific property.

Returned to my surveyor, spoke with the Flood Plan Manager for my city and resubmitted the forms to FEMA.  They requested yet another form, a flood application form, be completed. I thought this was odd as we’ve had flood insurance for over 10 years. FEMA insisted it was the protocol. Fine.

April 2014

The next hurdle: FEMA/NFIP wanted the square footage of our garage, despite the fact that is attached to our house, they have pictures of it, and they have a survey marking it. I should clarify that these conversations were between NFIP and my insurance agent. After spending weeks sending my insurance agent down a rabbit hole, I recommend she educate herself on this product (flood insurance), take the bull by the horns, and tell them what’s what. They have all the information, we’ve crossed every i and dotted every t, you have more important things to do than run around chasing your tail all day.

Mission Accomplished!

Our insurance agent called and told me our paperwork had finally been accepted and that our flood insurance rates were going to drop from several thousand dollars per year to several hundred.

The clouds parted,  beams of sunshine shone down and a collective sigh could be heard across the phone lines. Then my agent told me she had to go – she was getting ready to watch a webinar on flood insurance.

FloodSavvy

Insurance Costs Remain High post House Elevation

OUR HOUSE IS “SPECIAL”: We live in a flood zone that has been deemed “special” by FEMA, and not in a good way. It’s rated in the highest category of flood insurance, beat out only by those who have ocean front views. The guilty party in our instance is not the Atlantic Ocean, but a gentle brook whose size is disarmingly small. Yet, it provides, under the right circumstances, significant flooding around the entire perimeter of our house. For all kinds of obvious reasons, we no longer wanted to have the brook entering our house like an uninvited guest who crashes the party and trashes your house.

RAISE THE ROOF: or the whole house, as we did. That’s right. Ripped it from its foundation, jacked it up about 5 feet, built some new access stairs and endured a few months of costly construction. All in the name of decreasing our flood risk and ever-climbing flood insurance rates.

Our updated information was sent to FEMA complete with our required new flood elevation certificate. We weren’t looking for a gold star for our foreheads, just a decrease in our flood insurance rates.

FEMA’S RESPONSE: No rate change – same as  BEFORE the lift. Why? Two words – Flood Vents.

Flood Savvy.com

Interior view of flood vent

WHAT IS A FLOOD VENT? Simply put, a flood vent allows for a free flow of flood water in and out of a home’s foundation walls. They serve to equalize the pressure on both sides of the foundation walls, decreasing the chance of significant damage. (see earlier post on flood vents)

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FEMA accepted flood vents

Not only do you need to have them, you need to have the right number of them based on the square footage of your house. The correct number of vents were on our plans, but our builder missed two of them. FEMA is a stickler that all criteria be met. Our house is out of harm’s way, but because we have seven instead of the required nine flood vents, they offered no reduction. A true all or none philosophy.  They have no competition, you can only get flood insurance through FEMA so they get to make all the rules. Once installed, we’ll resubmit our data to FEMA and hope for a better outcome.

FloodSavvy.com

Flood vents cut into the foundation near the ground