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A Guide to Understanding Private Flood


Understanding Private Flood Insurance: A Comprehensive Guide

By: Adam M. Matheny

Homeowners Insurance Doesn't Cover Flood

If you live in a coastal state like California, Connecticut, New Jersey, New York, or Florida, you might be wondering if you really need flood insurance for your home. But even if your mortgage company doesn’t mandate it, flood insurance is a smart investment for your home — and all your belongings within.

If it rains where you live, then your home is at risk of flood damage, no matter how minimal. Because homeowners insurance policies don’t cover damage from rising or flowing water, flood insurance will be your best friend during any possible flood disaster.

The NFIP (FEMA) Flood Insurance Basics

The National Flood Insurance Program (NFIP) has paid out tens of billions of dollars in insurance claims since 1968. Hurricane Harvey that hit Florida in 2017 was one of the second largest payouts, totaling $8.8 billion. This was second only to Hurricane Katrina, which paid out $16.3 billion in 2005.

The NFIP began allowing private insurance agencies to write flood insurance in 1983, as part of the Write Your Own (WYO) program. Available through 59 insurance agents across the U.S., these policies are backed by the federal government, though underwritten and managed through private carriers. Both NFIP and WYO policies will carry coverage limits of $250,000 for structures, and $100,000 for personal belongings.

If your home is worth more than $250,000, as many Floridan homes are, you’re probably wondering if private flood insurance will help save the home you’ve worked hard for and cherish so much. The fact is, every little bit helps.

What Exactly is Private Flood Insurance?

Private flood insurance is an insurance policy written by a private carrier and is not backed by the federal government. This means you’ll need to be sure your carrier has the financial backing to support any claim you make — especially after a catastrophic storm that could result in billions in payouts across your city.

It used to be that private flood insurance was only recommended for high-value homes not covered by an NFIP policy, or homes that wanted additional coverage beyond the $250,000 NFIP limit. But with carriers now offering as much as 25% in savings over NFIP insurance, private policies are becoming more popular. Policy holders also state they have shorter waiting periods and faster claim payouts.

The Difference Between NFIP (FEMA) and Private Flood Insurance

Aside from the obvious difference, you will find a few variants between the two flood insurance policies.

Some private flood insurance carriers will allow limits up to $2 million for a home, and $500,000 for your possessions within. Priceless collections like wine, fine art, or firearms can warrant even higher coverage. Private flood insurance will also cover living expenses if you can’t stay in your home during restoration and cleanup.

More often than not, private insurance carriers will pay your claims faster than NFIP, especially following massive storms like Hurricane Harvey or Katrina.

Is Private Flood Insurance Cheaper than Federal?

It seems like it would cost more, given all the advantages offered by private flood insurance — but ValuePenquin states that 77% of Florida homeowners could find a better deal on flood insurance through a private carrier.

Still, the same study also reported that some homeowners could pay as much as two times the cost of an NFIP policy, so it really depends on your home, your belongings, and your situation. It’s imperative to shop around and compare options to find what’s best for your needs.

Do Mortgage Lenders and Banks Accept Private Flood Insurance?

As of July 2019 a new rule went into effect as part of the Biggert-Waters Act, that requires lenders, including federal lenders like Fannie Mae and Freddie Mac, to accept private flood insurance. This has created a more competitive marketplace which gives you more choices in private flood insurance policies.

In October 2018, new flood insurance rules also made it easier to switch to a private flood insurance policy mid-year. You can even obtain a refund for the balance of your previous NFIP policy.

Is There a Waiting Period for Private Flood Insurance?

If the upcoming weather reports have you worried about a possible flood, you might be shocked to know there’s a 30-day waiting period before federally funded flood insurance policies take effect. On the other side of the coin, most private flood insurance companies only require a 10-day waiting period.

Where Can I Buy Private Flood Insurance?

The most important part of choosing a private flood insurance broker is to make sure they work with highly reputable carriers. This way, you’ll know without a doubt that you’re covered in the event of a disastrous flood. If you need help finding a local agent feel free to reach out to flow and we will direct, you to one.

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