Private Flood Insurance vs. FEMA Flood Insurance

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A standard homeowners insurance policy covers many types of losses, but homeowners are often surprised to discover that flooding isn’t one of them.

That’s why many mortgage lenders require homeowners living in a high-risk flood zone to buy a separate flood insurance policy. It’s typically a good idea to purchase flood insurance even if you live outside a flood zone, just for peace of mind.

If you need or want flood insurance, you can get it in one of two ways: through the Federal Emergency Management Agency’s National Flood Insurance Program (NFIP) or a private insurance carrier. In this article, we’ll dive into the similarities and differences between the two.

Here’s what you need to know about private flood insurance vs. FEMA flood insurance:

What is private flood insurance?

Private flood insurance is coverage that a private insurance carrier writes and funds, rather than the federal government.

Because private insurers issue these policies, they don’t have to follow FEMA’s NFIP requirements. This means they have more flexibility in setting rates, policy limits, and coverages.

For example, NFIP policies cap building coverage at $250,000, which may not be enough coverage for homeowners with more expensive homes. Private carriers aren’t subject to the same caps, so they can provide much higher limits.

You have three ways to get flood insurance on the private market:

  1. Buy a stand-alone policy. Some insurers write separate flood insurance policies.
  2. Purchase an excess flood policy. An excess flood policy provides extra coverage that kicks in once you’ve exhausted your NFIP coverage limits.
  3. Add a flood endorsement to your existing homeowners insurance policy. Some homeowners insurance carriers will allow you to add flood coverage to your existing policy for an additional premium.
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Benefits of private flood insurance

Private flood insurance offers numerous benefits, including:

  • Premiums may be lower: Private insurers have more flexibility with the rates they charge, so you may be able to negotiate a lower rate or shop around to find a provider that charges less.
  • Higher coverage limits: A private insurer is the way to go if you need limits higher than what the NFIP offers.
  • Enhanced protection: Private insurers may include additional or enhanced coverages in their policies, like living expenses if your home becomes uninhabitable due to a flood.
  • Shorter wait time for coverage to kick in: Private insurers may offer a shorter waiting period for coverage than NFIP policies.

Drawbacks of private flood insurance

A private flood insurance policy can also come with some downsides, such as:

  • May deny your application: Private flood insurers can decide which properties they want to insure and which they don’t, so if your home is located in a high-risk area, your application for coverage may be denied.
  • Higher deductibles: Private flood insurance carriers may require higher deductibles than those for NFIP policies.
  • May not renew your policy: If a private insurer determines that your flood risk is higher after your first year as a policyholder, it may choose not to renew your flood insurance policy.

How much is private flood insurance?

Private flood insurance premiums depend on your home’s location, coverage limit, and deductible. However, when the actuarial firm Milliman looked at policies in Florida, Texas, and Louisiana — three states that account for more than half of all NFIP policies in force nationwide — it found that a majority of single-family homeowners could pay cheaper premiums with private insurers than with the NFIP.

What is FEMA flood insurance?

FEMA’s NFIP is a federal program that helps property owners in participating communities purchase flood insurance. In return, those communities agree to participate in floodplain management to prevent or reduce the risk of flooding.

You can find out if your community participates in the program with the NFIP’S Community Status Book.

If you don’t live in a participating community, you can still get flood insurance through the NFIP. The Write-Your-Own (WYO) Program allows private insurance carriers to sell NFIP flood insurance under their own name. You can find a list of insurers that participate in the WYO Program on the NFIP website.

Good to know: For residential properties with one to four units, policies through the NFIP offer a maximum of $250,000 in Building Property coverage and $100,000 for Personal Property coverage.

Building Property coverage generally includes:

  • The building and its foundation
  • Electrical, plumbing, and HVAC systems
  • Refrigerators, stoves, and built-in appliances
  • Flooring
  • Built-in and permanently installed cabinetry
  • Window blinds
  • Detached garages (up to 10% of Building Property coverage)
  • Debris removal

Personal Property coverage typically includes:

  • Clothing, furniture, and electronics
  • Curtains
  • Portable appliances
  • Rugs
  • Washers and dryers
  • Food freezers and the food in them
  • Valuables like artwork and furs (up to $2,500)

Higher limits are available for multi-unit residential and commercial properties. For residential structures with five or more units, the maximum limits are $500,000 in Building Property coverage and $100,000 for Personal Property coverage. For commercial buildings, the cap is $500,000 for both coverages.

Benefits of FEMA flood insurance

An NFIP policy from FEMA has its perks, including:

  • Greater availability: The NFIP provides flood insurance to anyone living in one of its 23,000 participating communities. So even if your home is in a high-risk flood area, you can purchase a flood policy through the NFIP.
  • Won’t lose coverage due to flood claims: Private insurers may choose not to renew your policy if you have too many flood damage claims. NFIP coverage can’t be non-renewed due to large or repeated losses.

Drawbacks of FEMA flood insurance

NFIP policies have disadvantages too, such as:

  • May cost more: Flood insurance through the NFIP may be more expensive than a policy from a private insurer.
  • No guaranteed replacement cost: NFIP policies pay for your home’s replacement cost or the actual cash value of flood damages, up to the policy limit. You’ll have to cover the difference out of pocket if your loss exceeds the policy limits.
  • Longer waiting period for coverage to kick in: NFIP policies typically have a 30-day waiting period for coverage to go into effect, while private insurers may have much shorter waiting periods.

How much does FEMA flood insurance cost?

FEMA sets rates for NFIP policies based on a property’s location and assessed flood risk. However, the average annual premium for an NFIP policy was around $700 in 2019.

Fortunately, you can take steps to lower your property’s flood risk and qualify for a discount on your policy. Some risk reduction measures include:

  • Elevate your utilities. Relocating utilities from the basement or ground floor to an attic or elevated platform means they’re less likely to be damaged in a flood.
  • Install flood openings. If you have a basement or another fully enclosed area below the lowest elevated floor, installing flood openings — vents that allow flood water to flow through — can prevent pressure buildup that can destroy the walls and foundation.
  • Fill in basements. Homeowners with basements in high-risk flood areas typically pay 15% to 20% more for flood insurance than those without basements. Filling in your basement can lower your premium significantly.
  • Elevate your property. Elevating the structure of your home above the community’s base flood elevation can lower your risk of flood damage and reduce your premiums.
Keep in mind: These types of improvements can be costly, so be sure to discuss them with your insurance carrier to learn what types of improvements can reduce your flood risk and how much you’ll save.

Private flood insurance vs. FEMA flood insurance

Here’s a comparison of private flood insurance and NFIP policies:

  Private flood insurance NFIP policy
Availability Varies by insurer Available in all 50 states and U.S. territories
Coverage limits Varies by insurer Up to $250,000 for Building Property coverage and $100,000 for Personal Property coverage
Loss of use coverage Yes, depending on insurer and policy terms No
Insurer can non-renew due to loss history Yes No
Waiting period Varies by insurer; can be as little as 10 days 30 days

Which flood insurance should I choose?

If you need flood insurance to satisfy your mortgage lender’s requirements — or just want the peace of mind that comes from knowing you’re covered in the event of a flood — it’s a good idea to get quotes from both the NFIP and private insurance carriers.

NFIP insurance is available from a network of more than 50 insurance providers, as well as NFIP Direct. You can reach out to your existing insurance agent or find an insurance provider on the NFIP website.

Remember, the limits available through the NFIP max out at $250,000 for your home and $100,000 for its contents. These limits might be inadequate, depending on the value of your property. In that case, a private flood insurance policy might be your only option for full coverage.

Keep in mind: As with other types of insurance policies, cheaper isn’t necessarily better. If you go with a private flood insurer, make sure it’s reputable and that the coverage meets your needs. You’re better off selecting a higher deductible to lower your premium than going with a carrier that won’t be around when disaster strikes.

Learn More: What Does Homeowners Insurance Cover?

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About the author
Janet Berry-Johnson
Janet Berry-Johnson

Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.

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