The National Flood Insurance Program faces challenges from years of deficits and outdated risk assessment (flood maps). Fortunately, private options have emerged designed to meet the needs of consumers looking for better coverage.
These policies are typically a viable alternative to NFIP for those in moderate- to low-risk areas, and they satisfy federal requirements and mortgage lender mandates.
Cost
Private insurance providers, operating independently, can set rates that more precisely reflect the individual property’s risk of flooding. This allows them to offer cheaper policies than the NFIP, though prices vary by region. Private insurers also often provide higher limits on policy coverage, enabling you to insure more of your home and possessions.
The NFIP requires a 30-day wait period before you can begin the claim process, while many private insurers provide coverage 10 or 14 days after you open and pay for a policy. Additionally, personal policies may define what must occur to activate a flood event more clearly than NFIP standards do.
While NFIP policies still comprise most, private flood insurance has gained popularity thanks to lower costs and higher protection limits. This is especially true for homeowners living in SFHAs, who can use personal policies to satisfy federal and mortgage lender requirements.
As insurers continue to become more comfortable with assessing and pricing flooding risk, it is expected that private flood insurance will only grow in market share. Until then, the NFIP remains the best option for those seeking coverage.
Coverage
Despite being the most frequent and expensive natural disaster, primary homeowners’ or renters’ insurance does not cover floods. Instead, a separate flood insurance policy is needed, available from the National Flood Insurance Program (NFIP) and private insurers.
NFIP policies are backed by the federal government and offered through a network of carriers. Private policies, however, often provide higher coverage limits and additional protections like loss-of-use coverage that pays for hotel stays and restaurant meals if your home is rendered uninhabitable after a flood.
Private flood insurance companies also use eye-in-the-sky satellite images, historical data, and other geeky things to assess your risk more accurately — and, therefore, your premium.
Remember, though, that private policies aren’t available for all properties, such as mobile homes and houseboats. Also, if you drop your NFIP policy and switch to private, your mortgage lender may require a 30-day waiting period before your new policy takes effect.
Talk to a licensed independent agent to find out more about your options. They can help you compare the cost and coverage of both types of policies and answer your questions.
Policy Limits
As with any flood insurance in Tennessee, the limits outlined in your policy are essential. They determine how much protection you’ll have in a flood and what costs you will be responsible for. A good understanding of your risk and assets, combined with the knowledge of available limits, will help you make an informed decision.
While the government funds the NFIP, private insurers are for-profit companies that either have their reinsurers or rely on the funds collected from premiums to pay claims. This allows them to customize their policies and offer more flexible options. For example, private insurers often provide higher building and contents coverage limits and shorter waiting periods than the NFIP.
Another advantage of private flood insurance is that the premiums often reflect actual flooding risks rather than the inflated rates set by the NFIP. As a result, many mortgage lenders now accept private flood coverage as sufficient coverage and will not require you to obtain a federal policy to get a loan.
However, it’s important to note that not all private insurers are created equal. Some are surplus line carriers, which means they don’t have the same level of financial stability as standard or “admitted” insurers. As such, they aren’t required to contribute to a state’s guaranty fund in the event of bankruptcy.
Requirements
A private policy can provide more comprehensive coverage for your home and personal property than a standard NFIP policy. For example, many private policies include living expenses to help you find and stay in your home during a flood.
They can also cover the cost of a temporary relocation, such as a hotel room. In addition, private policies often include higher maximum limits for building and content coverage than NFIP.
You can shop for a private flood insurance policy, much like any other type of homeowners insurance. You’ll need to compare prices, coverage options, and deductibles. Some companies offer discounts for bundling with different types of insurance or for taking specific mitigation measures, such as flood vents and elevation certificates. Some private policies use a more straightforward definition of flooding than the NFIP’s requirement that water inundate two or more homes and acres.
Some private companies will not insure mobile or houseboats or properties in a flood zone that has recently flooded. Some do not insure buildings in the highest-risk zones, and others require a minimum of $1 million in building coverage or more.
Other private companies may have a more extended waiting period for new and renewal policies. Some offer lower premiums but a more costly deductible, so it’s essential to make sure you can afford the upfront burden of the higher deductible before making that choice.
