Everything We’ve Learned About Flood Insurance

I’m no fool. I know why most of you come to this blog. You can pretend you’re here for Kerry’s design ideas, but let’s be real: you’re here for the flood insurance talk. You’ve been waiting, for years, for me to really open the floodgates about flood insurance. Well today is your lucky day.

In all seriousness, I know this blog post might be pretty narrow in scope. Most people will never have to worry about flood insurance. We never thought we would either. But in the process of purchasing the cabin, we learned a LOT about it, and we figured it’d be a good idea to explain the incredible hassle we went through and provide useful information that I had trouble finding on my own.

As we were going through the purchase process, we were under the assumption that we didn’t need flood insurance. I know that’s a pretty ridiculous thought, for something literally on the water, but everyone involved in the process told us that we didn’t need flood insurance. From what we heard, floods are not a risk up there, even on the water. The seller’s disclosures listed that it was not in a flood zone, the selling agent said it wasn’t in a flood zone, so we just trusted everybody. Lesson one: don’t trust anyone.

Once our offer was accepted and we were dealing with our bank to finalize our mortgage (a mortgage, I want to point out, that was calculated by us to NOT include flood insurance), we were informed by the bank that our new house was, indeed, in a flood zone. Um … what? We will never know if the sellers knew this or not, but the disclosures were wrong. The sellers had not been to the house since they bought it just over a year ago (or so their agent told us, even though we had seen evidence to the contrary), so I want to assume that they were just unaware.

We decided that we could deal with flood insurance, so we called the State Farm agent who was doing our home insurance. That particular agent does not do flood insurance. In fact, of all the State Farm agents in the area, only one did flood insurance. I thought that was kind of odd, but I reached out to the agent. He was incredibly nice, but it was pretty obvious that he did not deal with many flood policies … why would he? As we had learned earlier, floods were not really a risk up there.

This is when I really began to learn how flood insurance works. Most large agencies (your State Farms, your Farmers, your All-States) “provide” flood insurance, but the policy is “underwritten” by the National Flood Insurance Program (NFIP), which is part of FEMA. So you’re doing all your paperwork and payments through your agency (for the purposes of this post I’ll just refer to State Farm, who we went through), but the policy is written by NFIP, and NFIP determines the premium that you have to pay. This means that any agency you use, the price will be the same. There’s no need to shop around because NFIP sets the rates, not State Farm.

The good news (or so we thought) for us, according to the State Farm agent, was that we were in a zone that had only recently been declared a flood zone. When you are in one of these new zones, NFIP will give you a discount on your premium for a few years. It’s kind of like a, “hey, you can’t help it that climate change is turning your land into a flood zone” discount. Our agent said, looking at his numbers, he thought our premium would be about $400 a year. That was definitely feasible for our financial plan. He said, “You’re lucky. If it weren’t newly mapped like this, it could be at least 10 times that.” That sounded awful, but at least it wasn’t for us.

Lesson two: refer to lesson one (don’t trust anyone). After it seemed like our agent ghosted us for a bit, he came back with some pretty awful news: he was wrong about how we were mapped. Apparently FEMA has two different terms: NEWLY mapped and INITIALLY mapped. I, to this day, am not sure which is which, and which one means what, but basically one of them means that you used to not be in a flood zone, and then they checked again and now you are — because of climate change, shifting waters, whatever. If that’s the case, you get a discounted premium (I believe this is NEWLY mapped). The other means that your land has never been mapped before, and upon mapping it, FEMA says, “yeah you’re obviously in a flood zone. You always have been.” If that’s the case, you don’t get a discounted premium, because they believe you’ve always been a flood risk, they’re just finally confirming it (I believe this is INITIALLY mapped).

Our cabin falls into the latter category. FEMA decided we were always a flood risk, not a new flood risk, so NFIP decided we need to pay their full premium. This number is that “at least 10 times” higher number our agent had told us about. It is, to be one hundred percent transparent, something we cannot afford. We had not factored this kind of payment into our monthly bills, and Kerry and I had a very sad and serious discussion about this being something that will force us to sell this house in a year or so (note: keep reading, because all is not lost … yet).

At this point, to close, we just needed a flood insurance policy. The bank would not close unless this policy was in place. You know what the biggest obstacle is when you’re trying to work with a government agency to get a flood insurance policy? A government shutdown. During this entire process, the government had been shutdown. FEMA was there (they’re an essential service), but writing flood insurance policies is not at the top of their priority list. We were past our closing date, we were paying penalties to the sellers for missing the date, and we had absolutely no control. Our real estate agent was asking us to put pressure on our insurance agent, she was reaching out to him directly, but there was nothing he could do. NFIP had to write the policy, and they weren’t going to do anything until a wall was built, or something. NFIP did eventually write our policy during the shutdown, it just took a lot longer than it should have. Thanks Trump.

So at this point we’ve closed, we have the house, but we’re thinking, “Okay, we fix that kitchen, we stage it, we take better pictures, and we sell it.” It was the saddest conversation. Kerry and I have — even though we’ve barely been there twice — fallen in love with this house and the idea of selling it is devastating. Before we fully committed to that idea, I wanted to check two things.

First, our State Farm agent said that he believed we could get out of this insurance need by applying for an elevation certificate. FEMA only assesses the land when they’re mapping flood zones. But if your structure is a certain elevation over the flood plane, you can get out of insurance altogether. You need to get a surveyor to come out and they check all the elevations and apply for the certificate for you. Having seen our house, our agent was pretty confident we’d be fine.

So we found a surveyor to get out there and take a look. Long story short on that one: structural elements of the house are two feet below the flood plane. We would not qualify for the elevation certificate. So that was a few hundred bucks that we essentially threw into Lake Michigan.

Second, our State Farm agent, when he delivered the bad news about the higher premium, had said that there are private insurance agencies who don’t use NFIP, and they might be able to give us a lower premium. They can set their own rates, rather than just use whatever NFIP tells them to, since they’re “underwritten” by someone besides FEMA. They are apparently hard to find, and I assumed they’d be very hard to find in an area that historically did not deal with a lot of flood risk, but I started looking around. He had said that if we can find one, he would gladly cancel our policy and refund us. He was actually pretty annoyed at the raw deal we had gotten.

I eventually found a company, based out of Traverse City, that does not use NFIP. Their premium is higher than what we were initially hoping, but significantly lower than what NFIP charges. So, lesson three: check for all your options. I can’t say that private companies will always be less than agencies that use NFIP, but in our circumstance, it was.

Before we committed, we wanted to check with our bank to make sure that they’d accept private insurance. The whole private insurance thing is very convenient in our circumstance, but I was a little nervous that our bank would not accept it, if it wasn’t backed by NFIP. The good news is our bank said the agency we found is fine, and will accept their policy.

So the flood insurance is settled, and we are moving forward, thinking we are in a good enough spot that we might not have to sell. The premium adds a monthly expense we were not expecting, but we think it’s manageable. We’ll see. It was a good lesson to us, and I hope it’s a lesson to you: absolutely check to see if you’re in a flood zone, and check to see if there are any local agencies that don’t use NFIP if you are interested in comparing prices. Or … just don’t buy anything near water. Whatever is easier.

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