Catastrophe Savings Accounts Proposed For U.S. Homeowners

Legislation creating catastrophic savings accounts–which would be comparable to Health Savings Accounts, allowing homeowners to put money aside tax-free to prepare for the financial impact of a major natural disaster–has been introduced in the House of Representatives.

The legislation was introduced by two members of Congress from Florida–Democratic Rep. Debbie Wasserman-Schultz and Republican Rep. Tom Feeney. It is similar to a bill introduced in the Senate several weeks ago by Florida's two senators–Democrat Bill Nelson, a former insurance commissioner, and Republican Mel Martinez.

“Addressing disaster relief for Florida's families is a bipartisan issue, and I believe Catastrophe Savings Accounts are an excellent vehicle to empower homeowners and encourage personal responsibility and preparation,” Rep. Feeney said.

CSAs are structured in the same manner as Health Savings Accounts. Under the bill, a catastrophe tax-free savings account could be opened to cover current and future catastrophe-related expenses.

The money could be withdrawn to cover qualified disaster expenses tax-free. Qualified expenses will include: deductibles, uninsured losses, flood damage and structural upgrades for future storms. Upon retirement, the money could be removed from the account penalty-free.

The legislation has strong support in the insurance industry. According to officials at the National Association of Mutual Insurance Companies, CSAs “would go a long way” toward encouraging homeowners to prepare for catastrophes.

Justin Roth, a senior federal affairs director for the National Association of Mutual Insurance Companies, said the current tax code “does not encourage either homeowners or insurance companies to reserve money for future natural catastrophes.”

He added that NAMIC backs the effort by Reps. Feeney and Wasserman-Schultz “to finally provide them that ability.”

Rep. Schultz said the bill is necessary in disaster-prone areas such as Florida, where residents recently experienced back-to-back record-setting hurricane seasons coupled with unexpected devastating tornadoes.

“This legislation will put the power in the people's hands and encourage them to save and prepare for future disasters,” she said. “In addition to high insurance costs and lack of insurance availability, incredibly high deductibles have hurt Floridians.”

Since the savings are tax-free, Floridians get equitable tax treatment since they use pre-tax dollars to fix damaged property, Rep. Schultz explained.