Private flood insurance vs NFIP
Fact-checked with HomeInsurance.com
Your homeowners insurance policy protects you from a wide range of disasters, from fire damage to civil disturbances and nearly everything in between, but there’s one thing that most home insurance policies universally do not cover: flooding. To be covered for damage to your home and possessions from floods, you’ll need a special flood insurance policy.
Until recently, flood insurance was almost exclusively provided by the National Flood Insurance Program, a government initiative administered by the Federal Emergency Management Agency (FEMA). Is all flood insurance through FEMA? Not anymore.
In 2019, federal regulators allowed mortgage lenders to accept private flood insurance policies if they abide by certain restrictions. This opened the door for private insurers, and now there are currently more than 100 companies offering flood insurance in the U.S.
How do you know if you need flood insurance? When purchasing a home, it’s a good idea to ask your realtor if your prospective purchase is in a flood zone. The NFIP has a flood zone map that allows you to enter your address and find out. If you are in a flood zone, your mortgage holder may even require you to carry flood insurance.
However, according to FEMA, 20-25% of flood claims occur outside of high-risk flood zone areas. So even if you’re not in a zone, it’s worth considering a policy if you can afford it, especially if you live near a creek or smaller source of water that could possibly expand and enter your house during heavy rain or other weather events.
What is private flood insurance?
Private flood insurance is offered by private companies, in contrast to the vast majority of flood insurance policies which are sold through the government’s National Flood Insurance Program (NFIP). The top two sellers of private flood insurance in the U.S. are Assurant Inc., and Zurich Insurance Group.
Since an NFIP policy has the relatively low upper limit of $250,000 for your home, with $100,000 for property, if you have a high-value property, private insurance will provide more comprehensive coverage limits. Your private policy may also cover more than a federal one, such as living expenses while your home is being repaired.
The National Flood Insurance Program
The National Flood Insurance Program (NFIP) was created by Congress in 1968 to help those who live in floodplains and others who are at risk of flood damage. As previously mentioned, an NFIP policy will pay on flood claims up to $250K for damage to your home, with an additional $100,000 maximum claim for the contents of your home and other belongings.
Flood insurance is not purchased directly through the NFIP. Your first step should be to contact your own insurer, who likely sells flood insurance from the NFIP. Otherwise, the NFIP Referral Call Center will connect you with an insurer who does facilitate the sale of flood insurance.
You’ll also need to find out if your community is covered by the NFIP’s Community Listing; most municipal areas in the U.S. do participate in NFIP services. If you don’t live in a participating community, you can still get coverage through the Write Your Own (WYO) Program, which is a collaborative partnership between private insurers and FEMA.
For your flood insurance deductible, you’ll choose an amount that works best for your budget. The NFIP requires you to choose a deductible for both your building coverage and your property coverage (which can differ). Your deductible can be as low as $1,000 or as high as $10,000, with discounts available for choosing higher deductibles.
Private flood insurance vs NFIP
NFIP policies have set claim limits, and the policies may not cover extras — such as living expenses— that a private insurer might include in your policy. But the NFIP policies do have one important benefit that private providers don’t offer: once you have coverage, it can’t be canceled.
Homeowners shopping for flood insurance should be aware that some companies are more financially sound than others. It pays to check each company’s AM Best or Moody’s ratings to see if they are A-rated, and thus financially able to pay out on claims in the event of a large-scale disaster.
Cost of private flood insurance varies, and it’s recommended to get quotes from several companies along with the NFIP to determine where the best prices are. Other considerations, such as customer service, may also play a role in your decision.
|Private flood insurance||NFIP|
|State availability||Varies, depending on company||50, plus U.S. territories|
|Coverage (Building)||Actual cash or replacement cost value, depending on policy||Building coverage is at least 80% of the full replacement cost of the building, or is the maximum amount of insurance coverage available.|
|Coverage (Contents)||Actual cash or replacement cost value, depending on policy||Actual cash value, up to $100,000|
|Alternative Living Expenses (ALE) or Loss of Use||Yes, depending on company and policy details||No|
|Debris Removal||Yes, depending on company and policy details||Yes|
|Certificate of Elevation Requirement||No, but having one may make you eligible for discounts||Yes, if your home is in a high-risk area|
|Waiting Period||15 days or less||30 days|
|Accepted by Lender||Yes||Yes|
|Rebuild limit||$500,000 or more, depending on policy||$250,000|
|Insurer may cancel policy||yes||no|
Private flood insurance is a good alternative to NFIP insurance.
- Recent legislation changes allow mortgage lenders to accept private insurance.
- Private insurance can offer benefits that the NFIP can’t, such as higher claim limits.
- Private flood insurance may include additional living expenses coverage in the event your home becomes uninhabitable due to flooding.
- Private insurers can cancel policies for any reason; NFIP policies cannot be cancelled.
Private flood insurance is increasingly common as mortgage lenders can now accept it for homeowners in high-risk areas. Private policies allow for much higher limits than the NFIP’s $250,000 building/$100,000 property. There may also be the opportunity for supplemental coverages such as living expense coverage with private coverage.
Private flood insurance may be more competitively priced, but homeowners should ensure that the company is financially stable. They should also be aware that their coverage can be cancelled, unlike NFIP insurance.