Insurance is a great thing to have when the unexpected occurs. Unfortunately, it’s very rare to find a policy that covers every possible thing that might happen to your home; some incidents such as natural disasters typically require separate policies that cover the specific damages that can occur when these sorts of things happen. A good example of this is flood insurance, which isn’t included in most homeowners’ policies, but is still a popular coverage option, especially in Southwest Florida. See, for example, the FEMA flood zone map for south Collier County below.
Collier County flood zones
You'll probably, if you live in Collier County, find yourself asking whether or not you need flood insurance. No one wants to pay for something they'll never need or use. To help you answer the question of whether you actually need flood insurance, let’s look at the coverage it provides and the circumstances in which it’s all but essential.
What Is Flood Insurance?
Flood insurance is an insurance policy that provides coverage in the event of a flood. That is a bit of an oversimplification of the coverage that the insurance provides, though, and it can lead some people to not get flood coverage when they actually live in an area that needs it. Flood insurance provides coverage to help you recover in the event of flood damage, which can occur from several different causes.
While flooding obviously produces flood damage, there are multiple ways that flooding can occur that need to be covered. Prolonged periods of heavy rainfall can produce floods, but flooding can also occur with severe storms, tornadoes, or hurricanes. It's important to understand that flood insurance may also cover some damage caused by events that are related to flooding, even if the flood waters don’t directly cause it, such as flooding resulting in a sewer backing up and similar incidents.
Do You Need Flood Coverage?
In areas that are prone to flooding, which includes much of Collier County (see the map above), you’ll likely be required to buy flood insurance as a condition of your mortgage before you can take out a loan to buy a home. This is especially true if you buy your home with an FHA loan or other government-backed mortgage and live in what’s known as a “flood hazard area.” Even if your mortgage doesn’t specifically require flood insurance, if you live in such an area, you may want to pick up a policy because it’s more than likely that you’ll eventually experience some amount of flooding.
FEMA 2.0
In the past, homeowners could always rely on getting relatively inexpensive flood insurance through the Federal Emergency Management Agency (FEMA). However, that resulted in a situation where policyholders with lower-valued homes were paying more than their fair share for the risk incurred while policyholders with higher-valued homes are paying less than their fair share of the risk. Because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property’s unique flood risk.
FEMA 2.0 now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types—river overflow, storm surge, coastal erosion and heavy rainfall—and distance to a water source along with property characteristics such as elevation and the cost to rebuild. FEMA 2.0 is a transformational leap forward that enables FEMA to set rates that are fairer and ensures rate increases and decreases are both equitable.
The new system is complicated, but the bottom line is that more expensive homes will now pay higher - possibly much higher - flood insurance rates, and the increases started on April 1st, 2022. Current homeowners with FEMA flood insurance will have their rate increases capped at 17% per year until they reach the new, higher rates. New homeowners obtaining FEMA flood insurance for the first time will pay the new, higher rates immediately, unless they're buying their home from someone who already has flood insurance. In that case, the buyers can elect to assume the sellers' flood insurance policy, which will then ensure they only pay the capped 17% rate increase each year. Check with your professional realtor to help sort out how best to manage flood insurance in your new home.
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