Excess Flood Insurance: What Is It? Who Needs It? – ValuePenguin
Excess flood insurance is a type of private flood insurance that extends its limits beyond the coverage limits of the government-sponsored National Flood Insurance Program (NFIP). Homeowners whose homes would cost more to rebuild than the $250,000 NFIP flood insurance limit should consider adding excess flood insurance, especially if they live in a high-risk flood zone.
who needs excess flood insurance?
Flood insurance is generally required for homeowners if their residences are located in special flood hazard areas (SFHAs) and have federally backed mortgages. if this describes you, all lenders will require you to have flood insurance that covers the smallest of these three:
However, if your home has a rebuilding cost (or a mortgage) of more than $250,000, your lender may require you to purchase additional coverage beyond the NFIP maximum. It’s not a legal requirement, so not all lenders will insist that you buy excess flood insurance. You can find a lender that will provide you with a mortgage even if NFIP flood insurance doesn’t fully protect you.
Even if you’re not required to purchase additional flood coverage, it may be worth the extra expense, especially if you live in an area with high risk of flooding. Special Flood Hazard Areas have a 26% chance of flooding over the course of a 30-year mortgage. If your home is completely destroyed and the $250,000 is not enough to cover the cost of repair or reconstruction of your house, you will be aware of the remaining costs. Carefully weigh the risks against the price of coverage before deciding whether to purchase excess flood coverage.
who doesn’t need excess flood insurance?
Most people don’t need additional flood insurance. In particular, you don’t need it if your home’s replacement value is less than $250,000, in which case you can get enough coverage only through NFIP. In addition, we do not recommend additional flood coverage if your residence is not at high risk of flooding, as the policy could be quite expensive.
How are excess flood insurance rates determined?
Excess flood insurance rates are set similarly to regular flood insurance prices. An excess flood insurance company will charge a different amount based on the coverage limits you choose, whether you select coverage up to actual cash value or replacement cost value, and your home’s overall flood risk. flood risk is a complex formula based on several criteria. these include:
Unlike NFIP flood insurance, each excess flood insurance provider sets its own rates. this means that prices will vary from company to company, and you should check with several providers to find the cheapest price for coverage.
what does excess flood insurance cover?
excess flood insurance covers you for the same types of damages and expenses covered by regular nfip flood insurance. This includes repairing or replacing your home’s essential structure and systems if damaged by flooding, whether the flooding is due to a storm, tsunami, hurricane, or other cause.
Excess flood insurance also pays for personal assets in your home, such as clothing, furniture, and electronics. Please note, however, that personal property coverage in NFIP insurance is subject to a separate limit of $100,000. Also, there are often restrictions on items kept in a basement, as they are more likely to be damaged during a flood.
Some excess flood insurance providers may also go beyond what the nfip covers. This could include reimbursement for lost income, additional living expense (ale) coverage, and even flood prevention costs such as sandbags. however, the availability of these coverages varies by insurance provider, so check with multiple insurers if there is a specific coverage you need.
excess flood insurance coverage limits
There is no legal maximum coverage limit for excess flood insurance. As such, the maximum amount of coverage that a given excess flood insurance provider can offer is up to each company to decide. maximum coverage limits can be in the millions of dollars. For example, Chubb offers up to $15 million of combined coverage for your home and its contents.
an alternative option: completely private flood coverage
For homeowners who want or need coverage above the $250,000 NFIP limit, an alternative to purchasing NFIP coverage and supplementing it with an excess flood policy is a fully private flood insurance policy. a fully private policy and a combined nfip/excess coverage policy have many of the same benefits, but there are a few differences to consider.
You may also find that a single flood policy from a private insurer has lower rates than separate private and public policies. another advantage is the reduced complexity of having to administer a single policy: there is only one bill and one claim to make.
on the other hand, purchasing additional flood coverage and nfip coverage instead of a single private policy allows you to reap the benefits of both a private and government-backed flood insurance policy. For example, the $250,000 allocation you have through the NFIP cannot be canceled or not renewed due to high risk. In addition, the government sets the NFIP rates through a formula. By choosing a public/private mix, you’re also guaranteed to meet your lender’s flood insurance requirements.
Most importantly, both options will allow you to cover the full value of your home, often up to millions of dollars. We recommend that homeowners considering additional flood coverage collect quotes from multiple insurers, both for an additional and wholly private policy, and consider which option best aligns with their needs.