Flood Insurance Rate Hikes Delayed Due to Government Shutdown

The effects of Hurricane Katrina are being felt, with increasing impact, even today. The onslaught of flood insurance claims that followed the catastrophe created huge financial problems for the National Flood Insurance Program. The Biggert-Waters Flood Insurance Reform Act was passed in 2012 (BW-12) in order to keep the Program solvent. A bipartisan proposal to delay the implementation of the rate hikes that the act envisages has been blocked by the congressional dispute over Obamacare and the consequent government shutdown.

The proposed increase in flood insurance rates has all the stakeholders, except the insurance companies, worried. A look at the situation in Florida will explain why. The state has more people covered by subsidized flood insurance than any other state in the country. Everyone, from the Governor down, is worried that any increase in insurance rates could have an adverse impact on the real estate market which is only now beginning to get back on its feet after the recent recession.

Who Gets Hurt?

Pinellas County in Florida, which includes the city of St. Petersburg, has more subsidized flood insurance policies than any other county in the nation. It is estimated that about 33,000 hoes will be affected by the proposed increase. The median value of these homes is $132,245 and the average size is approximately 1,430 square feet. These are not the homes of the super-rich – they belong to middle class homeowners. Surprisingly, about 66% of these homes, which will be subjected to the rate increase, do not have either a water view or water frontage. The impact of the increase on these homeowners could be devastating.

And Florida isn’t the only state to be worried about the situation. The Mississippi Department of Insurance is trying to block the proposed increase by filing a lawsuit. Louisiana is considering action that will enable the state to sell flood insurance to residents. Other state may soon consider following suit. California too will be impacted by the proposed premium increases.

The amount of the proposed increase is not small. Under the new rules, all those who bought homes in flood zones after July 6 of last year, when the act was signed into law, will face insurance premium increases of up to ten times what they are currently paying. Those who owned property prior to that date will be faced with annual flood insurance premium increases of up to 25% per year.

The definition of flood zones is also controversial. While many of the affected properties are on or near the Gulf Coast, many of those that will be affected by the rate increase are located quite far inland. But since they are in low lying areas, they are considered flood zones for the purpose of the rate increase.

A Solution Is Needed Fast

Obviously the National Flood Insurance Program cannot be allowed to fall into financial chaos. Adequate funding to keep it operational is essential. But at the same time, to subject homeowners to such a huge rate increase is not just unfair, it will create havoc in the real estate market that is still in a fragile state.

While both those who support the increase and those who wish to delay it have valid arguments to support their cases, the Congressional deadlock may see this critical proposal fall by the wayside and become mired in the quicksand of partisan politics and result in many people suffering undue financial hardship for no fault of their own.

How Property Owners Can Protect Themselves

Talk to Insurance by Allied Brokers today and know your options. You’ll need to know about if your property is located in a Special Flood Hazard Area (SFHA) and your property’s elevation in relation to the Base Flood Elevation (BFA). You’ll also need an elevation certificate to accurately determine the premium rates. Contact allied brokers at (650) 328-1000 with your questions about BW-12 and how it would affect your policy.

Avoid Insurance Surprises When Buying or Selling a Home

Don’t let insurance surprises blow your real estate transaction! Here are some common deal-breakers:

1. You don’t pre-qualify for home insurance before escrow close.

Before escrow close, the title company will request proof-of-insurance from your insurance agent. If the amount of insurance does not meet the lender’s guidelines, you could lose the house of your dreams.

Let Allied Brokers review your policy well in advance of escrow close and the deadline for waiving the insurance contingency. And if your insurance agent is an employee of the insurance company that wrote the policy, he may not be able to do anything to solve the problem. Oops!

 As an independent insurance broker, we work with ten different carriers and will be able to get you the coverage you need- whatever your situation.

2. You don’t run an insurance claims history report on the property you are buying

If there are previous insurance claims against the property you want to buy, your insurance agent needs to know about these risks before escrow close. Some big companies, like State Farm, will not insure properties with any claims history. Your realtor should run a “clue report” to learn about previous claims.

Multiple claims guarantee difficulty getting insurance and higher premiums. Allied Brokers had a client in La Honda whose house was damaged twice by large trees falling on it. Since the house was in a forest and the surrounding trees were not chopped down, it’s likely the next big windstorm will cause more damage. Insurance companies won’t touch a property where future damage is so clearly predictable. Conversely, remedied claims are not much of a concern. If you were robbed but afterwards installed a burglar alarm, insurers won’t expect this claim to be made again.

3. If you, the buyer, have reported insurance claims at your prior residence

Two claims in a short period of time is a red flag to insurance companies and puts you in the top 5% of homeowners that will file a claim. If you have more claims within 5 years, you will be cancelled. We advise you to raise your deductible to $5,000 and spend the money you save on lower premiums to pay for repairs yourself. Insurance is for big risks you can’t afford to cover, not maintenance or the small stuff. If you are going to have a claim, have a big one.

4. If you are selling a home with the following conditions:

• No electrical, plumbing, heating or roof upgrades in the last 20 years.   
• Old wood roofs in wooded areas.
• Fuses.
• Galvanized plumbing.
• No earthquake retrofitting if your home was built before 1960.

Most insurance companies decline coverage for these conditions. Some companies will give you time to make the proper repairs.

5. What about occupancy?

Will the home be owner-occupied, a vacation home or a rental? Will it be vacant or under construction? These all make a difference in what type of policy you should have and your agent needs to know this before placing the coverage. If not, you could be declined, or worse, your claim will not get paid.

Call Allied Brokers to avoid nasty surprises that can break a real estate deal. We provide free clue reports to realtors. Consult with us well in advance of escrow close to learn what the required coverage amounts are and then get pre-approved for them. We have the resources to solve any insurance problem.

Visit our website at www.alliedbrokers.com for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Year End Tax Saving Tips

The end of the year is the time when most of us think about taxes and ways to save on them. Two common and effective ways are:

By deferring income. If you are planning to sell off investments on which you have made a profit, consider the potential tax savings if the sale is deferred till next year. Similarly, if you expect a year-end bonus, you could defer the receipt for a month and take the money in January, thus deferring the tax liability till 2012. The same applies to any stock options you may be entitled to. While exercising the option may not be taxable, selling the stock is. For the self-employed, examine which invoices and bills can be deferred (thus deferring the
income) till January 2012.

You can also accelerate deductions. Make a reasonable estimate of your state tax and pay the installment in December rather than the January due date. You can also pay your complete property tax bill for 2012 in December 2011. Please note that this is not applicable to mortgage escrow accounts. Medical and other “threshold” expenses are deductible only to the extent they exceed a defined percentage of the Adjusted Gross Income. If you can group all these expenses into one year, the chance of exceeding the threshold increases; as does the amount of deduction.

At Allied Brokers we do not just sell insurance policies. We work with our clients to provide them the optimum insurance coverage at the right cost. Whether it is life insurance, health insurance, home insurance, various types of business insurance, auto insurance or any other kind of insurance, we customize solutions that are right for our clients. We have been in business over 50 years and are proud of the reputation we
have built. Visit our website at http://www.alliedbrokers.com/ to learn more about Allied Brokers and the insurance services and products we offer. Or call 1-888-505-7988 (toll free) for a free quote.

Information courtesy Orlando, Mitts, Moore & Company, San Jose, CA. Phone: 408 278-0300.