Most people are surprised, and some are even shocked to discover that flood insurance isn’t included in their home insurance policies. More to the point, it is specifically excluded from insurance protection through your homeowner’s policy.
Most people will simply purchase flood insurance through The National Flood Insurance Program (The NFIP) only to be blindsided with the reality of the coverage limits. The better you understand the limitations of The NFIP and other options available to you, the better prepared you are to make informed decisions when buying flood insurance.
What is a Flood?
Flood insurance covers direct physical loss caused by “flood.” In simple terms, a flood is an excess of water on land that is normally dry. Here’s the official definition used by The National Flood Insurance Program. A flood is (1) “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from a. overflow of inland or tidal waters; b. unusual and rapid accumulation or runoff of surface waters from any source; or c. mudflow*. (2) collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined in A.1.a. above.
* Mudflow is defined (in part) as “A river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water.”
What Is The NFIP?
The NFIP was created as a result of the passage of the National Flood Insurance Act of 1968. Congress enacted The NFIP primarily in response to the lack of availability of private insurance and continued increases in federal disaster assistance due to floods.
The NFIP allows property owners who live in participating communities to buy insurance protection the government administers to protect against flooding losses.
The purpose of The NFIP has never been to insulate businesses and homeowners from all flood-related losses completely. Instead, it was designed to spare them from financial ruin in the event of a flood.
Flood insurance is required if your property is in a designated high-risk flood zone and receive a mortgage loan from a federally regulated or insured lender. If you do not have a mortgage, it is still recommended that a property owner buy flood insurance.
What are the coverage limits for The NFIP policies?
The NFIP does have maximum available limits as Congress currently authorizes.
In Regular Program communities today, all one- to four-family residential buildings have a maximum limit of $250,000 and a $100,000 limit for contents coverage.
For non-condominium residential buildings with over five or more units (“Other Residential” classification), the maximum coverage limit is $500,000 with a $100,000 contents maximum limit.
For Other Non-Residential buildings like Non-Residential Business, each building and contents has a $500,000 maximum limit. Entry-level Emergency Program communities have way lower available limits.
So, how do homeowners fill in the gaps in coverage when their home values and possessions are considerably higher in value than The NFIP maximum protection allows?
Excess Flood Insurance
People who have homes above the median value or who need additional protection for their possessions will find the higher limits of flood insurance policies help them bridge the gaps and provide the peace of mind the National Flood Insurance Program does not.
The higher limits allow you greater peace of mind while also offering protection for you, your home, and your possessions.
While many floods do not cause total damage to the structure of your home, as little as one inch of standing water inside can force you to replace all the flooring. Every inch above that requires more extensive repairs and higher costs. Even if your home isn’t a total loss in the aftermath of a flood, expenses add up quickly.
The surprising thing is that you don’t have to live on or near large bodies of water to experience flooding in your home. Because of that, you want to be prepared ahead of time with sufficient flood insurance protection.
One word of caution, it takes 30 days for flood insurance to become active for your home unless it’s due to a loan closing. In this case, the 30 day waiting period is waived. It is important to purchase flood insurance before storms are on the horizon.
While not all floods lead to total damage, the damage they create can be devastating. The NFIP exists to protect families from financial devastation in the event of a flood, but it doesn’t protect from all losses.
What is Private Flood Insurance?
Private flood insurance isn’t as standard as The NFIP. In fact, it makes up just a small part of the entire flood insurance market. However, there is an increase in the number of homeowners thinking about private insurance.
Some private flood insurance policies often provide higher coverage limits than The NFIP. For instance, some companies can offer up to $2,000,000 in maximum limit in-home coverage and a $500,000 limit in Maximum Content Coverage.
There are several reasons why people are choosing private flood. For instance, FEMA is currently $20 billion in debt and that adds uncertainty to this government-funded program. In addition, more carriers are changing their underwriting guidelines making this a more feasible option.
Private flood insurance doesn’t have a waiting period either if you buy the policy to close a loan. They also commonly have shorter waiting periods than The NFIP when it is not required due to a loan closing.
Generazio Associates, Inc. Insurance provides several private markets, higher coverages, flexible coverages, endorsements, and shorter waiting periods not available in The NFIP. We can customize a policy for you with one of our team members.