A vacation home on the seacoast used to be a retreat. Now, it can be more like a money pit.
Owners of summer homes on the coast not only are getting hit with higher flood-insurance premiums, but also a $250 annual surcharge. The fee, which took effect last month, affects only owners of second homes in flood-prone areas.
The surcharge is $25 for primary residences.
Nationwide, more than a quarter of the 5 million homeowners who use the National Flood Insurance Program are insuring vacation homes, according to a 2013 federal government estimate. While its unclear how many of the 60,000 policyholders in Massachusetts are covering secondary homes, flood insurance experts say it could affect thousands, from those who have cottages on Scituate’s Humarock Beach to owners of clapboard capes in Dennis.
“It’s exorbitant,” Jack Gleason, a 72-year-old retired teacher from Andover, said of the surcharge. Gleason, who has owned a cottage in Plymouth for more than 40 years, was notified this week that he has to pay the $250 on top of the hundreds he spends annually for flood insurance.
Gleason said he bought flood insurance a few years ago, after watching the extensive water damage caused by storms such as Hurricane Sandy. Flood insurance is a separate coverage from homeowners insurance.
“After this, I might have secondary thoughts,” he said about the costs. “It might force people out of flood insurance.”
Peter Ruffini, a managing broker for Coldwell Banker in Scituate and Cohasset, said coastal homeowners have to accept that flood insurance prices are going to increase substantially every year. The increases are cooling the real estate market in some coastal communities, Ruffini said.
“A lot of folks are rethinking the value proposition” of living near the ocean, he said. “When the first question is ‘Is it a flood zone or does it have flood insurance?’ most people don’t want to see it.”
The average annual premium for flood insurance — for both primary and secondary homes nationwide — is rising 19 percent in 2015 to $638, according to the Federal Emergency Management Agency. The figure does not include the surcharges.
Recent hurricanes and tropical storms have triggered a need for the premium increases and surcharges. Federal flood insurance covers homeowners that private insurers refuse to cover because the risk of loss is too high, too expensive, and too frequent. The program, which is subsidized by taxpayers, is more than $24 billion in debt, hobbled by payments on claims after Hurricane Katrina in 2005 and Hurricane Sandy in 2012.
The price increases are designed to make the program more self-sufficient, said Susan Hendrick, a FEMA spokeswoman.
“Providing flood insurance through the National Flood Insurance Program is an important way communities can protect themselves from one of the most common and costly disasters we face,” she said.
Congress in 2012 tried to do more to change the federal flood program and reduce the taxpayer subsidy, so the insurance would better reflect the costs and risks of living near the water. But the changes, including higher premiums, came as a separate effort that expanded flood zones. The two factors increased the cost of insurance for some by thousands of dollars annually, provoking a nationwide outcry from coastal homeowners.
‘A lot of folks are rethinking the value proposi-tion’ of living near the ocean. --Peter Ruffini, Coldwell Banker
Last year, Congress approved a scaled-back version of the reforms that included smaller, capped, premium increases. But the surcharge was one of the ways for the program to recoup its expenses, according to FEMA. And it remains unlikely to change.
US Representative William Keating, a Bourne Democrat, said homeowners got some relief with last year’s legislation, though more has to be done “to accomplish the difficult balance of ensuring our coastal homeowners are paying for affordable flood insurance while also maintaining the solvency of the program.”
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