Did you miss your chance to keep low flood insurance rates?
It's one of those "blink and you'll miss it" type things, particularly if you and your family took a weeklong spring break trip.
Insurance companies sent out letters to more than a million homeowners with flood insurance policies telling them to prove that they live in their insured properties -- or face premium increases of 25 percent each year, "effective June 1."
The problem for some of these homeowners is that the letters were mailed in mid-April and arrived while they were on vacation.
Since it's your typical insurance letter with lots of legalese, it probably puzzled policyholders as to just what it means. And, if and when they figure it out, they might have to rifle through their safe-deposit boxes to prove where they actually live.
The National Flood Insurance Program (NFIP) is $24 billion in debt. In 2012 Congress passed the Biggert-Waters Act, which would boost flood insurance premiums to make up for this monstrous shortfall.
What Congress forgot was that homeowners in flood-prone areas couldn't pay these huge increases and so would be forced out. And things only got worse when Superstorm Sandy hit later that year. Those of us who live along the New Jersey and New York coastline, such as myself, are still trying to scrape together the money to rebuild.
Our representatives listened to all of us angry voters and -- in a rare bipartisan move in March -- Congress and the President modified Biggert-Waters to slow down the flood insurance rate increases.
Prove it, and now
This helps, but only if you are the homeowner of record -- and can prove it -- in a hurry. These letters from insurance companies such as Nationwide, which administer the flood insurance program for the NFIP, demand documented proof showing that you live in the flood-insured property. Proof can be in the form of:
- Voter registration card.
- Documentation of where your child or children attend school.
- Driver's license or similar document.
The insurance letter that I read doesn't say whether to send the original or a copy and that the deadline is early May, depending on the date of the letter. Otherwise you will pay 25 percent more each year until, to quote the letter, your "premiums reflect the full-risk rate." Exactly what the "full-risk rate" is has yet to be determined, since the flood maps are being redrawn. I've already been told that flood insurance would cost me $31,000 a year for my $120,000 home.
Needless to say, this makes a lot of people mad, including Ann Pellegrino of Saint Petersburg, Fla., who told me she got her letter on April 18. Fortunately this attorney, who specializes in foreclosures, was home when it was slipped into her mailbox. "I went on 'red alert" to protect my home," she says.
But she is still not confident. The insurer's letter says that "you or your agent" must submit the verification document -- not to the NFIP -- but to the company that sold you the flood insurance.
Hopefully that agent or company will then send it on to the NFIP, which will allow her to keep her residential -- and lower rate - -policy.
But what if her local agent drops the ball and doesn't forward her documentation to the private homeowners insurance company? Or what if the private insurer loses her envelope? Or forgets to send it on to the NFIP before the May cut-off date?
Out of "absolute fear" of some mistake she says she immediately emailed her letter and verification document to her local agent. And, the day after Easter, she rushed to the post office to overnight a second set of verification directly to the insurance company by certified and return receipt requested mail.
Smoke and mirrors
Pellegrino is probably not going to have a problem. But she's worried about her Florida clients and the hundreds of thousands of homeowners around the country who have flood insurance.
Many of them never heard of Biggert-Waters. And those who did probably think that because the premium hikes were rolled back in March they now have nothing to worry about. But if they lose their flood insurance, or have to pay rates that they can't afford, banks will simply yank their mortgages and force them to sell.
"It's all smoke and mirrors," Pellegrino says. "And it's moving America from an ownership to a rentership society."
Des Toups is a writer, editor and expert on insurance, cars and personal finance. He has written extensively about all three for national publications such as MSN and major newspapers such as the Seattle Times. He has been quoted about insurance issues in The New York Times, USA Today and Kiplinger's. Follow him on Twitter @destoups.