Private Flood Insurance vs. NFIP (National Flood Insurance Program)

Choosing between private flood insurance and the National Flood Insurance Program (NFIP) depends on your coverage needs. Flood insurance through the NFIP offers basic coverage as required by banks. Private flood insurance companies provide higher limits and additional coverage options that are not available through the NFIP at competitive prices. Some homeowners may be able to use the NFIP for adequate protection, but many will benefit from the options provided by private flood insurance like Neptune Flood.

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, 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

Exploring flood insurance options reveals significant differences between the NFIP vs private flood insurance. The NFIP is a federal program, while private insurance companies like Neptune Flood offer tailored private flood insurance coverage. Private insurers may provide higher coverage limits and additional benefits. The difference between the NFIP and private insurance includes the waiting period for your policy coverage to go into effect with NFIP flood insurance, whereas private market flood insurance can be immediate. 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, founded in the late 1960s, and backed by the federal government, provides flood insurance and establishes 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—over 50 years after the National Flood Insurance Program was created.

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 for obtaining 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.

Advantages of Private Policies

Private policies are often cheaper

In general, private flood insurance costs 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 is more than likely the least 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 residential property coverage goes up to $4,000,000 – 16 times the coverage than NFIP policies! 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 or a rollover from another policy.

Why is private flood insurance 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.

Is Private Flood Insurance better than FEMA?

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 coverage 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.

Private flood policies also cover commercial flood risks and offer higher coverage limits. Understanding what’s the difference between insurance through the NFIP and private options helps in deciding to purchase a flood policy. 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.

Conclusion

Choosing between private flood insurance and the NFIP depends on various factors such as cost, coverage limits, and waiting periods. While the NFIP has been a reliable government option for decades, offering standardized coverage limits and widespread availability, private flood insurance has emerged as a competitive alternative. Private policies often provide higher coverage limits, additional benefits like temporary living expenses, and quicker policy initiation. They are generally more affordable, with savings ranging from 20% to 50%. Given these advantages, it’s wise to consider private flood insurance alongside the NFIP to ensure you get the best possible protection for your home and possessions. Consulting an insurance agent or insurance agency can help navigate flood insurance programs and private choices.

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.

Frequently Asked Questions

How does the Neptune Policy differ from the NFIP Policy?

Neptune offers private flood insurance with higher and broader coverage options than the NFIP, a FEMA-backed program with limited coverage. Unlike the NFIP, Neptune offers optional coverages to expand your coverage, such as temporary living expenses and pool repair and refill. 

What are the coverage limits for NFIP and private flood insurance? 

The NFIP offers up to $250,000 for building property coverage and $100,000 for personal property. Neptune, however, provides building coverage up to $4,000,000 for residential, up to $10,000,000 for commercial, and $15,000,000 for RCBAP, along with a suite of additional coverages for comprehensive protection.

Is the waiting period the same as the NFIP?

No. Neptune provides a reduced waiting period of only 10 days, compared to 30 days under the NFIP. Neptune has no waiting period if coverage is for a real estate closing or a rollover from an existing flood policy.