If you were considering a FEMA-run flood insurance for your home you’ll want to get it before October 1, when monthly premiums could increase for up to 77% of policyholders. By getting a policy before that date, your rates will be locked in for a year after the new pricing goes into effect for new policies. Here’s what you need to know.
Why are flood insurance rates going up?
Since standard home insurance policies don’t usually cover the ever-increasing risk of floods, most flood insurance policies are administered by FEMA’s National Flood Insurance Program (NFIP). However, as of October 1, the program will undergo sweeping changes as part of a “Risk Rating 2.0” reform that will change how premiums are determined. Per FEMA:
As proposed, NFIP premiums calculated under Risk Rating 2.0 will reflect an individual property’s flood risk, in contrast to the current rating system in which properties with the same NFIP flood risk are charged the same rates. This will involve the use of a larger range of variables than in the current rating system, both in terms of modeling the flood risk and also in assessing the risk to each property.
The changes aren’t all bad, as 23% of policyholders will see a whopping $86 reduction in their monthly premiums. Of the remaining policyholders, however, 66% might see an increase up to $10 on their monthly bill, while 11% should expect monthly increases higher than $10. Unfortunately, these are just estimates—insurance agents don’t have enough details about the new risk rating, so they won’t be able to offer quotes on specific properties just yet (FEMA says that current policyholders should be able to contact their insurers for that information by August 1).
How can I avoid higher rates for flood insurance?
The good news is that the NFIP is letting policyholders lock in their current rates for at least a year, provided that it’s a policy renewing on or after April 1, 2022. After that date, your monthly rates will then be subject to the new rating methodology. In other words, you have until October 1 to sign up for flood insurance before the new pricing goes into effect (any decrease in your monthly rates will happen automatically starting on that day).
Added to that is another benefit of locking in your rates now: if your current premium turns out to be less than the “full risk” premium under the new pricing policy, the increased rate for the first renewal is capped at no more than 18 percent. And since hurricane season has just begun, you might as well sign up now to minimize your risk (also note that there’s a 30-day waiting period before coverage takes effect).
How do I sign up for NFIP flood insurance?
You can find a FEMA-backer flood insurance provider here (FEMA runs the NFIP program, but private companies actually offer the policies).
Another option worth considering is private insurance, as they can offer cheaper premiums for higher coverage maximums above NFIP’s maximum coverage of $250,000. The downside is that until recently, private insurance for floods was rare, so it’s a bit untested in terms of how easy it might be to make a claim during a major disaster. Value Penguin has a good post about the pros and cons of private insurance here, while Nerdwallet has a good overview of some of the bigger private flood insurance providers here.