Flood Insurance Options
Homeowners looking for flood insurance have two options for protection: FEMA ’s National Flood Insurance Program ( NFIP ) or private flood insurance.
FEMA started the NFIP in 1968 to provide affordable flood insurance to homeowners in high-risk flood zones. NFIP policies are great for homes in SFHAs since the NFIP can’t deny insurance to homeowners whose communities participate in the program.
NFIP policies offer building coverage and contents coverage as separate policies with separate deductibles. This means if you ever have to file a claim for damage to the structure of your home as well as damage to your personal belongings, you’ll be responsible for both deductibles before your coverage kicks in.
An NFIP building policy covers flood damage to your home, including foundation walls, staircases, electric and plumbing systems, furnaces and water heaters, refrigerators, stoves, fuel tanks, permanent carpeting, and even detached garages. You can choose an NFIP building coverage limit as high as $250,000 for residential buildings. These policies provide replacement cost coverage for policyholders who fulfill all of the following: they live in a single-family home, the insured property is their primary residence, and the building is insured for at least 80 percent of its replacement cost. Actual cash value coverage is provided when those circumstances don’t apply.
NFIP contents coverage protects your personal possessions, including clothing, electronics, washers and dryers, carpets, window blinds, and appliances like microwaves. You can choose an NFIP contents coverage limit up to $100,000, and these policies come with actual cash value coverage.
You can purchase NFIP coverage directly with an NFIP agent or with your current insurance provider through the NFIP ’s Write Your Own (WYO) program. NFIP flood insurance has a 30-day waiting period from the time you buy your policy to the time your coverage kicks in, so there’s no better time than the present to talk to an insurance agent about your options.
Mortgage lenders weren’t able to accept private flood policies until 2019, which explains why NFIP policies currently make up roughly 95 percent of the flood insurance market. Now, private flood insurance policies are on the rise because they can offer policyholders higher coverage limits, replacement cost for buildings and contents, and lower flood insurance costs for low-risk homes. Some private insurers even offer shorter waiting periods.
Private flood insurance covers the same basics as NFIP policies and includes additional living expenses coverage in case you need to leave your home while it’s being repaired. And most private policies offer building coverage limits up to $500,000.
The major downside to private flood policies is that private insurers can choose to deny coverage to homeowners in high-risk areas and choose not to renew policies after policyholders file expensive claims. The NFIP cannot deny or choose not to renew coverage due to an area’s flood risk or claims history.