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FLOOD INSURANCE - "FEAR OF THE UNKNOWN" - PART 3
Now that you know about flood zones, you probably want to know how the premium is calculated. If the house is in a X zone, then you will qualify for a Preferred Rate. The premium is based on the limit of coverage needed and the building's foundation. If the house is in a Special Flood Hazard Area (zone AE or VE), then in most cases, the insurance agent will need an Elevation Certificate in order to quote the flood insurance. The Elevation Certificate is completed by a licensed land surveyor and it will give detailed information about the elevation of the lot and the building's lowest floor elevation. The premium is calculated by taking the lowest floor elevation (LFE) and subtracting it from the Base Flood Elevation (BFE). Therefore, the magic formula is LFE - BFE. I'll explain BFE next. If the number is "positive" then the premium will usually be lower and more favorable. If the number is "negative" then this could result in higher than average insurance premiums.
When the NFIP draws the flood maps, they determine the flood zone and the Base Flood Elevation (BFE). The BFE is basically a benchmark that represents the elevation where waters would rise to in the event of a flood. This is important for builders because it allows them to build the first living floor, LFE, above the BFE. The idea is that if a flood occurs, then water would simply flow under the house without damaging the finished floor of the house.
FEMA will modify and revise flood maps periodically. The flood maps in NC are going to be changing soon. We expect that the new maps will be in effect in the summer of 2016. You can view the maps online by visiting http://rfris.nc.gov/fris. Several properties will see a change in their flood zone and/or the Base Flood Elevation. If the change will result in a lower flood insurance premium, you can contact your insurance agent and ask them to revise your premium in the middle of your policy term.
It's important to know about pre-FIRM homes versus post-FIRM homes. FIRM simply stands for Flood Insurance Rating Map. If a house was built prior to the community adopting the flood maps, then it's known as a pre-FIRM house. Since there wasn't a flood map or flood building codes in place when the house was built, the house probably wasn't built to today's standards. Therefore, the actuarial flood insurance premium would typically be very high since the home wasn't built in compliance with flood building codes. For this reason, the NFIP has a subsidize flood premium for pre-FIRM homes. When Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012, they targeted pre-FIRM homes because they want ease out of rate subsidies. Therefore, if you buy a pre-FIRM house and get a subsidized premium, you may be at risk for substantial rate increases. Primary homeowners will get to keep their pre-FIRM rate, but non-primary homes will see an annual rate increase of 25% until the premium reaches the actuarial rate. The actuarial rate is determined by using an elevation certificate and our rating formula (LFE - BFE). We've seen some of these premiums reach $20,000 - $30,000 per year.
In closing, I would advise all property owners to visit www.floodsmart.org for more information. Also, if you do buy a house in a Special Flood Hazard Area, it's extremely important to use an insurance agent that is knowledgeable about flood insurance and the local area. I've seen too many people have an incorrectly rated policy which has cost them thousands of dollars. If you have an understanding of the flood insurance basics, it doesn't have to be so scary. Remember, flooding can happen anywhere with the right storm and circumstances. In my opinion, all property owners should protect themselves against flood damage just as they have protected their property against fire damage.
This information has been provided by: Jonathan Peele, Coastline Insurance Associates of NC, Inc., Southport, North Carolina Jonathan@CoastlineInsurance.com
And from all the team at Swanson Realty - a very happy, healthy 2016!!!
Contact Swanson Realty Today: 910-454-4450 | 4701-2 Southport-Supply Road, Southport, NC 28461