For decades, there was little choice when it came to buying flood insurance: All policies were written by the federal National Flood Insurance Program. Now private policies offer a second option that, despite a few drawbacks, provides flood coverage that can be less expensive for many homeowners.
Private policies aren't perfect. For one, they're less dependable than federal policies. Where the NFIP guarantees renewal of its policies, a private insurer may elect not to renew a policy or even to cancel it. And since private flood policies are new products, there’s uncertainty, even by insurance standards, about what policies might cost in future and which companies may still be writing them.
But the potential pluses to private policies are compelling enough that you should consider one, whether you now carry an NFIP policy or are shopping for flood protection for the first time. Here’s a rundown of why that's wise, along with tips on how to shop for this type of insurance.
What is private flood insurance?
Though homeowners insurance has always been written privately, modern private flood insurance arrived in the U.S. only in 2019. That's 50 years after Washington created the National Flood Insurance Program. It aimed to supplement disaster aid, which fell well short of covering all property losses, with insurance coverage that private companies would not or could not provide at the time, at least affordably. NFIP policies — which are sold by private insurers, for a commission from the agency — soon became a requirement to obtain a federally backed mortgage for a home in an area of high risk for flooding.
Those arrangements remain, and the NFIP's 5 million policies still overwhelmingly dominate the flood-insurance market. But now insurance companies are able to also sell private policies — to replace or supplement federal coverage — and mortgage lenders are required to accept those as a condition for lending. And insurers have been able to leverage a rising volume of climactic data to assess risk and price policies in a way that's different — and, many say, better — than using the often-outdated FEMA flood maps that drive premiums for the federal program.
Private policies are often cheaper
"In general, private flood insurance is going to cost less,” writes Robert Murphy of Better Flood Insurance, an online broker who sells both federal policies and private coverage. “20% to 50% less, and sometimes even more.” With the average annual premium for a federal policy around $700, according to FEMA — with high-risk homes potentially costing thousands — that price advantage could deliver significant savings.
A research paper by Milliman largely bears out that frequent price advantage. The actuarial and management consulting company found that 77% of single-family homes in Florida would see cheaper premiums with private insurance. The same is true for 69% of households in Louisiana, and 92% of those in Texas.
However, Murphy also writes on his company’s website that there are times (“few and far between,” he asserts) when the NFIP will cost less, often in areas of low risk for floods. Sometimes, too, he adds, a property that was once rated lower for risk may have that assessment (and the lower premium that accompanies it) grandfathered in.
Indeed, the Millman study also confirms that private flood insurance isn’t always the most cost-effective option. It found that some private policies cost twice as much as those from the NFIP.
Policy limits can be higher than with federal insurance
The typical maximum coverage limit for an NFIP policy is $250,000. That's about $100,000 short of the median U.S. home price at the end of 2020, according to Federal Reserve Economic Data.
Going with private insurance doesn’t assure you of a greater coverage limit than the NFIP provides, especially if you own a property in a high-risk flood zone. But in many cases, private insurers can offer twice that or more the level of coverage — especially if your property is located in an area with lower flood risk.
A case in point are the limits for privatemarketflood, an online insurance broker. The insurer says it matches the NFIP coverage in all respects except it provides up to twice the coverage for a residential building — $500,000, rather than $250,000 — and more than double the coverage for contents if you need it — $250,000, compared with the $100,000 limit for federal policies. (Of course, with its increased coverage, the private policy wouldn't necessarily cost less than a federal one with lower limits.)
Private policies cover possessions more flexibly
The $100,000 total for possessions under NFIP should be adequate for most homeowners. But the federal policies limit to $2,500 the total value of covered jewelry, artwork, furs, and other such collectibles. That maximum could be easily reached for even casual art owners, and would fall far short of what a serious collector would require.
Private insurance would allow a policy to be tailored, category by category, to the value of luxury possessions, much as one can do with a homeowners policy (which, just to confirm, does not provide flood coverage.) It could also provide another homeowners insurance feature that NFIP policies do not, according to Fuller and Sons: Reimbursing living expenses in the event flooding makes your home uninhabitable.
Private policies can be written more quickly
No matter the insurance choice you make, it’s too late to get coverage if flood-threatening weather is already on its way — or is even a named storm far off shore, which may or may not strike your area.
But a private policy can provide protection sooner after you buy it than does a NFIP one. The federal program requires a waiting period of 30 days after first paying the premium for a new policy. Some private insurers have the same requirement, but others allow you to be covered 10 or 14 days from opening and paying for the policy.
Consider shopping at a flood-insurance broker
Federal flood insurance is not sold directly by the federal government. Instead, under what’s known as a WYO (Write Your Own) program, you can buy NFIP policies through private insurance companies, including such familiar names as The Hartford, Allstate, and State Farm. This sales arrangement allows consumers to buy flood policies from the same company or agent from which they purchase other types of insurance. It may also allow you to fill out less paperwork.
You can also buy flood policies through independent insurance agents. A capable agent that handles both public and private types (not all do so), and specializes in flood insurance can advise on how the various options — including NFIP — stack up against one another.
Even if you ultimately buy elsewhere, websites for these agents may provide helpful tools and explainers. For example, the site for Better Flood Insurance has clear and useful guides to reading the FEMA Flood Maps that the NFIP uses to help determine the flood risk and premium for your property, along with explainers for documentation such as Elevation Certificates.
As with buying any other insurance, though, be careful not to trade a lower premium for other aspects of the policy you can't live with. For example, be sure you can handle the greater upfront burden of a bigger deductible before settling for a private policy that has a lower premium but a higher deductible than coverage from NFIP.