Private Flood Insurance vs FEMA


6 min read · Sep 17, 2022

Your homeowners’ insurance policy protects you from a wide range of disasters, from fire damage to civil disturbances and nearly everything in between, but there’s one thing that most home insurance policies universally do not cover: flooding. To be covered for damage to your home and possessions from floods, you’ll need a flood insurance policy.

How do you know if you need flood insurance?

When purchasing a home, it’s a good idea to ask your realtor if your prospective purchase is in a flood zone. The NFIP (National Flood Insurance Program) has a flood zone map that allows you to enter your address and find out. If you are in a flood zone, most mortgage holders will require you to carry flood insurance.

However, according to FEMA, 20-25% of flood claims occur outside of high-risk flood zone areas. So even if you’re not in a zone, it’s worth considering a policy if you can afford it, especially if you live near a creek or a smaller source of water that could expand and enter your house during heavy rain or other weather events.

If you do decide that you need a flood insurance policy, know your options.

You now have a choice

It wasn’t always this way. Until recently, flood insurance was almost exclusively provided by the National Flood Insurance Program, a government initiative administered by the Federal Emergency Management Agency (FEMA). Is all flood insurance through FEMA?

Not anymore.

In 2012, the government passed the Biggert-Waters Flood Insurance Reform Act, allowing mortgage lenders to accept private flood insurance policies if they abide by certain restrictions. This opened the door for private insurers, and now companies are offering flood insurance in the U.S. with flood coverage that can be less expensive for many homeowners.

Government vs private option

To help you make a more informed decision, let’s examine both options. Starting with the old-fashioned government option, the NFIP.

What is the National Flood Insurance Program?

The NFIP was established by the federal government in the late 1960s to provide flood insurance and establish floodplain standards in communities across the country. Around 90% of residential flood insurance in the U.S. is provided by the NFIP.

Policies are primarily sold through its Write Your Own (WYO) program to residents who live in an NFIP-participating community. The WYO program allows insurance companies to write and service government flood insurance using their name and branding. In fact, you can generally purchase NFIP coverage from your home insurance provider.

FEMA flood insurance includes two types of coverage with their separate out-of-pocket deductible.

  • Building property coverage: Pays to repair flood damage to your home or garage. The maximum building coverage limit for residential property is $250,000, which is often too low for more expensive homes.
  • Personal property coverage: Pays to repair or replace flood-damaged furniture, electronics, appliances, and other stuff you own. The maximum personal property coverage limit is $100,000.

Until recently, if you had a federally backed mortgage and you lived in a high-risk flood zone, your mortgage company could require you to buy flood insurance exclusively through the NFIP. But now lenders are required to accept private flood insurance as long as the policy includes at least the same quality coverage as the NFIP option.

What about private flood insurance?

Though homeowners’ insurance has always been written privately, modern private flood insurance arrived in the U.S. only a few years ago. That’s 50 years after Washington created the National Flood Insurance Program.

The private approach 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 can 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.

The advantages of private policies

Private policies are often cheaper

In general, private flood insurance is going to cost less– 20% to 50% less, with savings sometimes even greater. A 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.

However, there are times when the NFIP will cost less. For example, a property that was once rated lower for risk may have its premium grandfathered in. While it’s fair to say that private flood insurance more than likely will be the less expensive choice, it isn’t always the most cost-effective option.

Level of coverage

Private flood insurance is required to meet the minimum requirements of the NFIP. While the NFIP has a maximum coverage limit of $250,000 for property and $100,000 for contents, private flood companies are allowed to go above and beyond that limit. For example, Neptune’s property coverage goes up to $4,000,000 – 16 times the coverage of the NFIP! Private flood insurance can also offer additional coverages not included in the NFIP, like temporary living expenses and unattached structures.

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 offshore, which may or may not strike your area.

A private policy can provide protection sooner.The federal program requires a waiting period of 30 days after first paying the premium for a new policy. In other words, you could buy and pay for your policy today, but you’re not actually covered until 30 days from now. 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. Neptune’s waiting period is 10 days, with no wait and same-day coverage if it’s for a real estate closing.

Why private flood insurance is becoming more popular

Insurance companies no longer view flood insurance as an untouchable risk. Company models for determining the flood risk of each home are more sophisticated and getting better and better at predicting floods. This has incentivized more investment in private flood insurance, and as a result, companies are expanding and pouring more resources into new markets.

Private flood insurance vs. NFIP: Which is better?

Beyond all the advantages listed above, since private flood insurance isn’t subject to the same restrictions and regulations as traditional government flood coverage, insurers can offer coverage options not available through the NFIP. This includes payments for temporary living expenses — like hotel stays and meals.
Private flood insurance also often offers higher protection limits for your home and belongings, and policy enhancements like replacement cost personal property coverage, limiting your out-of-pocket expenses after a flood loss.

The potential pluses of privacy 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.

So, should you use private flood insurance?

If you’re not satisfied with the coverage limits offered by a federal policy or if you can find reliable service at a more affordable rate, private flood insurance companies can be a good option. Ultimately, deciding between private and NFIP flood insurance comes down to what you’re looking to cover with your flood insurance policy. You can get a quote from private companies like Neptune Flood in under two minutes right from the website, making it easy to compare to the NFIP.

Contact Us for Help

At Neptune, we are not weighed down by how things used to be. We’re driven by how things should be. Designed to meet the needs of today, tomorrow, and beyond. With a high-tech foundation built around you and your flood insurance needs. And since we’re private, Neptune can respond quickly, when you need us most.