Principal versus Primary Home: Flood Insurance Changes in 2014

The Biggert Waters Act has brought sweeping changes to flood insurance. Although there has been talk of repealing the law in Congress, that is not something that is likely to happen. In fact, House Speaker John Boehner last week stated "we are not going to do that." The Act is being rolled out in phases. In 2013, owners of vacation homes, severe repetitive loss homes, rental homes, and commercial properties began to lose their subsidized premium rates. The rates will be increased over time until they reach their full non subsidized premium. Owner occupied homes will keep their subsidized rates but cannot pass them on to the next owner if they sell their home.

In 2014, residential flood insurance policy holders will begin to receive a letter asking them to prove that their home is their primary residence. To qualify as a primary residence, the owner must live there more than 50% of the time. The owner must submit proof of residency by providing a copy of their drivers license, auto registration, proof of auto insurance, voter's registration, children's school documents or Homestead Tax Credit Form.

If you are unable to provide proof of primary residence, or if you fail to do so within  30 days of receipt of the letter, your premiums will increase at a rate of 25% a year until they reach the full non subsidized premium.

It is important to know that primary residence is different than principal residence in flood insurance. While proof of primary residence effects the amount of premium you pay, proof of principal residence affects the amount you are able to collect for flood damage under the policy.

A flood insurance policy will pay on a replacement cost basis (without a deduction for depreciation) if the home is your principal residence and the home is insured for at least 80% of its actual replacement cost. To qualify as a principal residence, you must reside there 80% of the time. If you fail to meet that threshold, the flood insurance policy would pay for damages on an actual cash value basis (with a deduction for depreciation).

If you would like to learn more about flood insurance, please contact us. The Russell Agency often gives seminars on flood insurance for realtors and attorneys offices. We would be happy to visit your office.

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