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

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

Did you know that as little as one inch of water inside your home can cause roughly $27,000 in damage? Without flood insurance, repairing that damage is entirely out of your pockets.

Most homeowners insurance policies specifically exclude flood damage from protection. As a result, you must purchase flood insurance through the National Flood Insurance Program (NFIP) or through a private insurance company to protect your home and possessions. 

Ultimately, through either program, flood insurance offers protection for your home and personal belongings if they are damaged in a qualifying flood event. The better you understand the differences between the two programs, the better-informed decisions you can make about which program is best for you and your financial interests.

Who Needs Flood Insurance?

Believe it or not, you do not need to live on or near large bodies of water to become a flood victim. With new housing developments becoming the law of the land, flash flooding has become a huge problem for homeowners all across the country.

If you live in a high-risk flood zone or even a moderate-risk flood zone, it is certainly within your best interest to purchase flood insurance for your home. If you have a mortgage, your mortgage provider will likely require you to buy flood insurance to protect their investment in your home. Keep that in mind as you weigh your options.

According to the Insurance Information Institute, 90 percent of all natural disasters affecting the United States involve some form of flooding, and 20 percent of all flood claims are filed in areas known as low or moderate risk areas. The odds are good that wherever you live in the U.S., you need flood insurance for your home.

Additionally, people who live in colder climates can become victims of flooding when large amounts of snow melt quickly. If major rain events occur, massive storm systems create large amounts of rain, causing contributory streams and rivers to overflow their banks. 

In other words, most Americans need flood insurance. After all, insurance is about preventing potential financial disasters created by specific events. What you need to understand, though, is that there are major differences between the National Flood Insurance Program and private flood insurance.

What Is the National Flood Insurance Program?

The National Flood Insurance Program, or NFIP, is managed by the Federal Emergency Management Agency (FEMA) and exists to help reduce floods’ financial impact on various communities. It is a government-backed entity that makes flood insurance affordable for many people who would not otherwise have the ability to purchase this essential insurance product.

What Does Flood Insurance Cover?

Flood insurance through the NFIP offers financial protection to home and business owners and renters for flood damage and property damage up to the limits of their policies. Just as one inch of water can cause significant financial devastation to homeowners, every additional inch causes further damage and destruction in its wake.

The longer the water remains in the home, the greater the risks of even worse damage to the home in the form of mold, mildew, and other structural damage.

Flood insurance for your vehicle is not covered under a home insurance policy or a flood policy. Instead, this type of damage should be covered by your automobile insurance. Of course, you must have comprehensive coverage for your vehicle to have flood protection. If you are in doubt about this, check with your insurance provider.

What are The Limitations of NFIP?

When dealing with that National Flood Insurance Program, you’re going to learn, quickly, that there are definitive limitations as to the protection it providers. For instance, private homes can only be insured for up to $250,000 for the structure and up to $100,000 for the contents of the house.

For example, the average home in New Jersey, though, per Zillow, is approximately $376,866. That is just for the structure of your home. The value of your belongings can easily surpass $100,000 — even for renters. Either way, that leaves a large portion of your home unprotected if a devastating flood destroys your home.

Business owners insuring their livelihoods through the NFIP face similar limitations of being limited to $500,000 in flood protection for their businesses’ structure and contents.

The other problem many homeowners face comes with the “contents” coverage of the NFIP policy. Rather than replacement costs protection for their possessions, the NFIP limits coverage to the actual cash value. This means depreciation will take a substantial bite out of your insurance benefits when making a flood claim.

Benefits of NFIP

One huge benefit of NFIP is the fact that the private insurance companies may opt not to renew your coverage once you file a claim or if they determine you are too great a risk to protect. That is not the case with the NFIP. In fact, you could have multiple claims, and the NFIP cannot cancel your coverage.

The other benefit of the National Flood Insurance Program that’s worth noting is that it provides cost-controlled coverage to many renters, homeowners, and business owners — provided the value of their home does not exceed the $250,000 maximum coverage available through the NFIP.

How Does Private Flood Insurance Compare?

When comparing private flood insurance vs. NFIP, private insurance offers more options to consumers like higher limits of coverage and lower premiums.

Not only can you protect homes of greater value with this coverage, but you can also protect your possessions better. In addition to the ability to purchase greater than $100,000 of protection for your valuable items, you may also elect to purchase full replacement cost coverage for your items, so you don’t have to deal with devastating depreciation.

Once upon a time, most consumers didn’t have the option to purchase private flood insurance. That seems to be changing in recent years as insurance providers offer greater flexibility in coverage amounts and types. Consumers are making calculated purchasing decisions to meet their insurance needs.

Another major benefit of private flood insurance is that most companies offer loss-of-use coverage.  This helps you obtain temporary living arrangements until your home’s repairs can be completed and your home livable again. 

One final benefit to consider is that FEMA has proven slow to react in many previous widespread flooding situations. That isn’t necessarily the case with private insurance companies.  This means you can often have your damage assessed and claims satisfied faster than those waiting for FEMA to respond.

Which Is the Best Choice for You?

Everyone has different needs when it comes to flood insurance. The Insurance Center of North Jersey understands what works best for your neighbor may not be the best choice for you.

Our goal is to make sure you have the insurance protection you need rather than simply selling you a policy. See the difference for yourself today. Together we will develop a plan that is the right price for you to meet those needs.

Contact The Insurance Center of North Jersey today, and let us assess your situation to determine how much flood insurance you need to fully protect your home and personal property.