Private Flood Insurance May Be a Wise Choice For Protecting Your Home
With increased construction of new buildings, road construction, and a deteriorating national infrastructure (including levees and dams), an estimated 41 million Americans are at risk for flooding. Flooding is the most common and costly natural disaster in the United States. And flood damage is not covered by standard homeowners policies.
To protect your primary or vacation home, you need a separate flood insurance policy. It can cover structures, windows, fuel tanks, and your home’s contents, such as personal possessions, small appliances, and artwork, depending on your policy.
Flood insurance is required for homeowners taking out government-backed mortgages for properties in high-risk flood zones. But homeowners in lower-risk areas may want to get it, too, because flooding damage can happen anywhere in the country. In fact, new risk models show that an increasing number of Americans are susceptible to floods.
Flood insurance is traditionally provided by the National Flood Insurance Program (NFIP), which is part of the Federal Emergency Management Agency. But you can obtain it from a private insurer as well. Private flood insurance has some advantages over government-backed insurance.
Two types of flood insurance
The two options for flood insurance are government-backed flood insurance through the NFIP and private flood insurance, offered by various private-sector insurance companies. You must go through an insurance professional to secure both kinds of coverage. You cannot buy an NFIP policy on your own.
Previously, mortgage lenders financing properties in high-risk areas could require homeowners to buy flood insurance through the NFIP. Now, lenders must accept private flood insurance that meets certain requirements. Private flood insurance accounts for a small but growing percentage of the flood insurance market. Your agent can help you find a policy that is right for you.
Private flood insurance has become more available in recent years as new maps and models have been released, making risk predictions more accurate. That said, different insurers have different restrictions. For example, they might exclude previously flooded properties or serve only a few states.
NFIP or private flood insurance?
NFIP coverage and private flood insurance have distinct features. There are several pros and cons to weigh when deciding which type of policy to choose.
| Coverage option | NFIP | Private flood insurance |
| Limits on structure | $250,000 | $1 million (or more) |
| Limits on personal property | $100,000 | Customized |
| Limits on jewelry, art, collectibles other valuables | $2,500 | Customized |
| Additional living expenses | No coverage offered | Customized |
| Waiting period | 30 days | 15 days (or more) |
| Program acceptance rate | Must accept flood zones | Selective |
| Areas of coverage | All 50 states | Limited |
Pros of private flood insurance
Private flood insurance is available in amounts up to $1 million, and higher with some insurers. On the other hand, NFIP insurance offers payouts up to only $250,000 for buildings and $100,000 for contents. Therefore, private insurance is attractive to owners of larger and more expensive properties.
Private flood insurance may cover things like living expenses if flooding makes your home uninhabitable. It may also help with the cost of debris removal, which can be exorbitant in a large-loss situation. It might
even cover loss avoidance expenses, such as sandbags. On the other hand, NFIP policies only cover structures and their contents. If NFIP insurance is your underlying policy, you typically won’t get reimbursed for hotel costs or other expenses not listed on the policy.
NFIP policies also have a longer wait time before coverage takes effect. With NFIP insurance, it’s 30 days. With private flood insurance, it’s typically 15.
Lastly, private flood insurance has more flexibility. For example, you can choose it as your primary or only flood insurance, or you can buy it as an excess policy. An excess private flood insurance policy extends over your primary flood policy, such as NFIP coverage. This gives you an extra layer of financial protection. But be aware that an excess policy will only cover the types of losses covered under your primary policy.
Pros of NFIP insurance
Though private flood insurance offers more coverage and features not available from the NFIP, it also has some drawbacks.
NFIP policies are available in all 50 states, whereas not all private policies are. Plus, private flood insurance can be harder to obtain in areas considered high risk. Private insurers can choose not to renew policies at their discretion, an option the government-run NFIP does not have.
The NFIP also must accept all applicants who live in communities that participate in the program, while private insurers can be more selective. NFIP coverage is often the only available option if you live in a high-risk flood zone.
NFIP insurance is more affordable. Even though private insurance offers significantly more coverage, it comes with higher price tags and deductibles. In 2021, the NFIP introduced its updated pricing methodology, Risk Rating 2.0—Equity in Action. Some have seen reduced rates based on updated data and other factors. Your agent can help you with comparison quotes.
Flash rains and snowmelts cause flooding, too
While flood insurance doesn’t cover homeowner neglect or wear and tear, it does cover:
- All rising bodies of water
- Storm surges
- Public water backups caused by flooding
- Other flood events, such as broken levees and dams
Hurricanes, heavy rains, snowmelts and water-company decisions can all cause flooding. Don’t assume you have to live in a designated high-risk flood zone to become a flood victim.
Remember that flood insurance typically has limited coverage for parts of your home that lie beneath the lowest elevated floor. Areas qualifying for this limited coverage usually include basements and crawl spaces, but may also include walkout or walkup levels that are partially underground.
Talk to a broker at Cragin & Pike
Whether you secure a basic policy or both NFIP coverage and excess insurance, it’s worth looking at the affordability and benefits of private flood insurance as an important part of your financial protection
portfolio. Talk to your insurance professional about the best coverage options for your specific situation. This
content is for informational purposes only and not for the purpose of providing professional, financial, medical, or,
legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or
problem.
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