Levying the Federal Flood Insurance Surcharge: Ensure You Aren’t Paying More Than You Should
Allison Peryea, Esq.
Floods can have a devastating financial impact on property owners and communities. To help defray the often significant costs of rebuilding after a flood, some homeowners and community associations, based on the locations of their communities and the language of their governing documents, are encouraged or obligated to obtain flood insurance. The National Flood Insurance Program (NFIP) is designed to provide individuals and entities with access to affordable flood insurance, promoting the likelihood that those who need it can purchase and maintain it.
As of April 1, 2015, every NFIP policy includes an annual surcharge required by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). The surcharge was adopted to slow the elimination of formerly subsidized rates, ensuring that those previously eligible for such rates can still afford flood insurance. The surcharge is paid at the time of application or renewal each year until the subsidies are eliminated. The revenue is placed into the NFIP Reserve Fund earmarked to cover the cost of future claims in a catastrophic event, and also to pay the program’s debt to the U.S. Treasury from previous catastrophic events.
The surcharge is included in the annual amount due to the insurer providing flood coverage at the time of application or renewal. Depending on the use of the insured building and the type of policy form used to insure the building, the surcharge is either $250 or $25. (There are three types of NFIP policy forms: Dwelling, General, and Residential Condominium Building Association.) The surcharge amount is not related to a property’s flood zone designation.
Policyholders of owner-occupied, single-family detached buildings and individual condominium units that are the primary residences of individual insureds under a Dwelling Policy form pay a $25 surcharge. (In general, a Dwelling Form provides coverage of detached, single- family homes,
residential condominium units, and residential
townhomes.) The term “primary residence” refers to a home that the policyholder or his/her spouse will live in for more than half of the next year following the policy effective date. Contents-only policies insured under the Dwelling Form and held by a tenant for the tenant’s primary residence will also include a $25 surcharge.
28 Community Associations Journal | April 2016
Policies for all other buildings will include a $250 surcharge, which also applies to policies insured under the Residential Condominium Building Association Policy (RCBAP) form, regardless of the number of units — attached or detached — or the use of the building. The RCPAP form is issued to residential condominium associations on behalf of an association and unit owners. (Note that a unit owner with an individual policy that includes building coverage may incur a separate surcharge.) All buildings insured under the General Property form, which may be issued to residential cooperative building owners, will include a $250 surcharge. Policies covering buildings designed for use by more than one family will be charged a $250 surcharge, even if the landlord uses the building as a primary residence or if the building is owned by a condominium association.
At the time of renewal, insurers should provide the policyholder with a notice to verify that the building is being used as a primary residence. To receive the $25 surcharge, a policyholder or agent must return a completed Verification of Primary Residence Status form to the insurance provider. Along with the form, the following documentation should be provided: A copy of a driver’s license, vehicle registration, proof of vehicle insurance, voter registration, documents showing where the policyholder’s children attend school, or a Homestead Tax Credit form for a primary residence. If a policyholder does not have any of these items available, signing and dating the residency statement on the verification form may be sufficient.
The verification form should be submitted to FEMA by the insurer within 30 days, but in any event it must be provided prior to the renewal date to ensure the correct surcharge amount is applied. If verification is not timely provided, the default $250 amount will be applied. However, FEMA indicates in its published materials that policyholders may be entitled to a reimbursement if they provide proper documentation to their insurance agent during the current policy year.
To learn more about the surcharge, whether it applies to your flood insurance policy, and if you are a policyholder eligible for the reduced surcharge amount, contact your insurance agent.
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