Hurricane Ida has devastated Louisiana and is threatening a “once in a lifetime flooding event” in the Northeast in the next few days—a grim reminder of the importance of getting a flood insurance policy if you don’t have one already. There’s a waiting period for new policies, which means that if you get coverage today, the insurance won’t be effective in 14-30 days, but you’ll still have some protection for the rest of hurricane season.
And even if you have a policy already—specifically, one purchased through the FEMA-run flood insurance program—there’s another reason to take a second look at your rates right now: you’ll probably save money. Effective Oct. 1, 2021, FEMA’s monthly premiums will increase for up to 77% of policyholders. However, by getting a policy before that date, your rates will be locked in for a year, even after the new pricing goes into effect. 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 Oct. 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 according to FEMA’s original estimates, 23% of policyholders will see a $86 reduction in their monthly premiums. Of the remaining policyholders, however, 66% might see an increase of up to $10 on their monthly bill, while 11% should expect monthly increases higher than $10. Homes in flood plains will be most affected. For example, in Louisiana, 70% of policy holders could see increases up to $120 per year, while 10% could see increases of up to $240 per year, or more. For estimates on how your rates might change, contact your insurance agent for more details.
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. Otherwise, if you’re purchasing for a new policy, you have until Oct. 1 to sign up 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.
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.
This article was originally published on June 16, 2021 and updated on Sept. 1, 2021 with new information.