Certified in financial planning by Boston University
Erin is a writer and journalist specializing in personal finance. With more than five years of experience, Erin has covered topics such as credit cards, mortgages, insurance, and more.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
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If you live in an area prone to flooding, it’s a good idea to carry flood insurance since traditional homeowners insurance policies don’t cover this hazard. After all, just 1 inch of water can cause about $25,000 of damage, according to the Federal Emergency Management Agency (FEMA). Depending on your mortgage, your lender may require you to have flood insurance.
Though FEMA’s National Flood Insurance Program (NFIP) underwrites most flood insurance policies in the U.S., it’s becoming increasingly common for private insurers to offer this type of coverage. Learn more about these two flood insurance options and how to decide which is right for you.
Private flood insurance at a glance
The majority of flood insurance policies are from the NFIP, while private flood insurers only make up about 32% of policies between 77 private insurers.[1]
To meet the flood insurance requirement many lenders impose, a private flood insurance policy must offer at least as much coverage as an NFIP policy would. Many private policies actually offer higher coverage limits, as well as some optional coverages, which provides more flexibility for homeowners.[2]
Good to Know
Private flood insurance costs vary by state and risk level. Private policies could possibly be cheaper because insurers can be more selective about the policies they write and use different risk-level evaluations. Policyholders in especially high-risk areas may end up with higher premiums regardless.[3]
FEMA flood insurance at a glance
The federal government created the NFIP as a part of FEMA in 1968 with the goal of reducing flood damage and protecting property owners. Flood insurance through the NFIP is available to anyone who lives in one of the more than 23,000 participating communities around the U.S.[4]
NFIP flood insurance offers coverage for homeowners, renters, and business owners in amounts of up to $250,000 for homeowners, $100,000 for personal belongings, and $500,000 for businesses. Rather than being underwritten directly by FEMA, many participating private flood insurers underwrite these policies.[5]
The NFIP sets premiums nationally, which means you’ll see less difference based on location and insurance company than with private insurance. Instead, your rates depend on your risk rating and property-specific factors, including the date and type of construction. The average annual flood insurance premium is about $700, according to FEMA.
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Private flood insurance vs. FEMA
Both private flood insurance and the NFIP through FEMA can be good options when buying flood insurance. Which one you should buy depends on a few key factors, including where you live and what you’re looking for in a policy.
First, to purchase flood insurance through the NFIP, you must live in one of the 23,000 participating communities. The good news is that your community likely participates if you live in a high-risk flood area. If you aren’t sure, you can visit FEMA’s community status database.
Private flood insurance may be the better option if you don’t live in a FEMA-participating community, need higher coverage limits, or want a more customizable plan.
A key consideration when choosing between private flood insurance and NFIP coverage is that private flood insurers have more discretion over the policies they offer. A private insurer could decline to write you a policy or elect not to renew your policy later on — the same can’t be said about NFIP insurance.
It’s also important to compare each policy by premium, pricing structure, claims processing and payouts, and more. You want to feel confident that if you have to file a claim, your insurance company will pay it out in a timely manner. Make sure to shop around for quotes to ensure you’re getting the best policy at the right price.
Assuming you’re eligible for both private flood insurance and an NFIP policy, you can choose which type of policy works best for you. Here are a few of the factors you’ll want to consider:
Private Flood Insurance
NFIP Insurance
Availability
Varies by insurer
23,000 participating communities
Coverage limits
Up to $500,000
Up to $250,000
Waiting period
15 days or less
30 days
Accepted by mortgage lenders
Yes
Yes
Loss of use coverage
Yes
No
Evaluating your coverage needs
As with any type of insurance policy, evaluating your coverage needs is important before purchasing your flood insurance policy. Here are some things to do when choosing your coverage:
Assess your flood risk. It’s important to understand your home’s risk of flooding. FEMA uses its Risk Rating 2.0 system to evaluate your flood zone and risk level. If you live in a high-risk flood zone, sign up for flood insurance sooner rather than later — your lender will probably require it.
Understand your policy limits. Coverage limits are one of the most important characteristics of any insurance policy. It’s critical to choose a policy that offers enough coverage. Private insurers can typically offer higher limits than the NFIP.
Compare costs. While NFIP costs are set nationally, private policy premiums may vary depending on where you live. In all cases, your home’s characteristics and risk level will affect your premiums. Make sure to shop around and get quotes from several insurers before choosing one.
Understand your risk tolerance. Insurance is all about risk management. Knowing your risk tolerance can help you choose the right type of flood insurance policy, coverage limits, and more.
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Private flood insurance vs. FEMA FAQs
It’s important to understand the difference between private flood insurance and FEMA insurance so you can choose the right policy. Here are a few more things you may want to know.
Is private flood insurance backed by FEMA?
No. Unlike flood insurance through the NFIP, private flood insurance isn’t backed by FEMA. Instead, these policies rely entirely on the financial strength of the insurance companies. Private insurers underwrite policies under the NFIP, but these aren’t private policies.
What’s the difference between private flood insurance and NFIP insurance?
Private flood insurance is any policy offered by a private company that’s not a part of the NFIP. The NFIP is a federal flood insurance program offered through FEMA and underwritten by private insurers. The NFIP doesn’t reject policies, but private insurers can. The NFIP has lower coverage limits compared to private insurers.
Is private flood insurance reliable?
As long as you choose a reputable company, private flood insurance should be reputable. Review financial ratings, industry scores, and customer feedback online to get a sense of the company’s reputation.
But there may be more risks than with NFIP coverage. For example, a private flood insurer could choose not to renew your policy when it expires, which isn’t likely to be the case with an NFIP flood insurance policy.
What are the benefits of private flood insurance?
Private flood policies may be more customizable and come with higher coverage limits. Private insurers also use different risk assessments, so they may determine your home as having a lower risk than the NFIP, and you could get a cheaper premium.
FEMA.gov. "Fact Sheet: Flood Insurance, What to Know."
Erin Gobler
Erin Gobler is a personal finance writer and journalist based in Madison, Wisconsin. With more than five years of experience, Erin has covered topics such as investing, credit cards, mortgages, insurance, and more. Her work has been featured in major publications like Business Insider, Fox Business, and Time. Erin received her bachelor’s degree from the University of Wisconsin-Oshkosh in 2013, studying journalism and political science. She also received a certificate of financial planning from Boston University in 2022.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
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