Like floodwaters crashing down the hillside or turning a dry creek bed into a raging river, FEMA 2.0 will completely wipe away certain flood policies and programs that are a part of the National Flood Insurance Program. What does this mean for you? Well, if you aren’t affected, it means nothing (except as a taxpayer, your money might be used a little more wisely). You’re like the homeowner that escaped the flood THIS time.
But if you have a grandfathered policy or are eligible for a Preferred Risk Policy things are about to change big time. They are also getting rid of the Mortgage Portfolio Protection Program and the Submit for Rate Program. But unless you are a lender or a flood agent, those won’t impact you.
Let’s focus on the financial effect of the changes to a regular homeowner.
Dropping the Axe on Grandpa
Sorry, Grandfather, you’ve got to go. Starting on October 1, 2021, FEMA 2.0 goes into effect and eliminates the use of flood maps to rate policies.
So, if you’ve got a policy that receives a reduced rate because you are grandfathered in under an old map you can say “bye bye” to your discount. No map means no map-related discounts.
The good news is that only 5% of the policies currently in the NFIP are grandfathered. The bad news is that if you are in that 5% you are looking at a rate increase. It might be a good time to shop the private market, see if you qualify, and compare the rates to your renewal rate without the grandfathered discount.
Pulling the Plug on Preferred Risk Policies
Since those maps determine who qualifies for Preferred Risk Policies (PRP), this program is getting the axe. But the death won’t be as immediate as killing the grandfather. FEMA 2.0 puts these policies on a “glide path” to ever-increasing premiums until you eventually painfully reach full-risk premium status.
But it’s going to take some time because the amount of your rate increase is capped at 18% per year.
What does this mean in practical terms? So very glad you asked!
If you currently have a PRP rate, your subsidy will gradually decrease. Your premiums will increase yearly, but that increase is capped at 18%. It sounds bad, but honestly, right now, you have a very good rate. And if you ever let the policy lapse because the premium wasn’t paid on time, you will automatically reinstate it at the full risk rate. And suddenly you will see what a really good deal you had.
For example, a full risk premium might be $1,000 or more, but you may only pay $500 or even less for the PRP policy. Forget to pay one time, and BOOM! Goodbye subsidy and hello $1,000 premium. Ouch.
If you currently qualify for a PRP policy but haven’t purchased it yet, for Pete’s sake, do it before
September 30, 2021. I don’t know who Pete is or why we do things for his sake, but I do know that time
is running out to lock in that subsidized rate for flood insurance.