Closing Tip: What the HECK is Going on with Flood Insurance Premiums?

Written by Joel Gerber. Posted in Closing Tips, Real Estate

One of the biggest topics surrounding real estate right now is: What the heck is going on with flood insurance premiums? Well, in 2012 the Biggert Waters Flood Reform Act (the “Act”) was passed by Congress. In part it was designed to extend the flood program five years. Why? To help eliminate closings that were being delayed because flood insurance was not available.

What also was included was a plan to bring the National Flood Insurance Program out of the doldrums and make it self-sufficient. While all that sounds great, what was never reviewed was the potential financial impact on some homeowners.

Please note that the information below might change as Congress is looking at ways to delay the Act. Why? Because the details are just now coming out and many of the politicians now realize the negative impact to many of their respective constituents.

General Guidelines:

  1. The Act only relates to real property situated in a Special Flood Hazard Area.
  2. If you carry flood insurance because you want to (not because a lender is requiring you to), then the Act does not impact you.
  3. If you are in an X zone, the Act does not impact you.
  4. If you are a newer home (typically mid-1980s and newer) the Act does not impact you. As there are always exceptions to this general rule, you need to check with your insurance professional to determine if your property is impacted by the Act.


There are over 5 million flood policies currently in place. Approximately 20% of these policies are older homes that were built when no flood code existed. These homes were given a subsidized rate to keep the cost affordable to the homeowner. Over time, the number of flood catastrophes has increased and the cost to the National Flood Insurance Program has put it into a $25 billion deficit.

Many of the homes that experienced damage were in the 20% and these are the homes that could possibly see a large increase in their rates. These properties will be rated based on the full rates and the subsidy is being removed. Beginning October 1, 2013, all of these changes take effect and an Elevation Certificate will be required to determine the true rate.

For someone that purchased his/her home before July 6, 2012 they will be eligible for a 25% “step up” each year until full risk rates are achieved. This is designed to ease people in to potential increases. For those who purchased after July 6, 2012 they will see full risk rates at their first renewal following October 1, 2013. They will be required to get an Elevation Certificate to renew their policy. For those that purchase a home and flood insurance after October 1, 2013, they will be required to have an Elevation Certificate to even get a quote.

Just like most things, even this is not as bad as it seems. Some properties will see increases, but most in our area will not be impacted. Just be proactive – consult your insurance professional.

If you have any questions regarding this post or have any other questions regarding real estate closings, trusts and estates, probate and LLC formations please contact me at (912) 484-1996 or

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