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HOW DOES EXCESS FLOOD INSURANCE WORK? (COSTS & COVERAGE)

So how does excess flood insurance work? A National Flood Insurance Program (NFIP) policy only offers coverage for homes up to $250,000 & personal property up to $100,000. Excess flood insurance offers coverage for your property if it costs more to repair or replace.

How Does Excess Flood Insurance Work?

If you are thinking about purchasing a home that is located in an area that is prone to flooding, you are going to need flood insurance coverage. Not only does this type of insurance protect you in the event of a flood, but it also protects the lender who will be issuing your mortgage. In fact, most lenders will not provide a mortgage unless you have flood insurance coverage.

How does excess flood insurance work? The majority of homeowners who require flood insurance purchase it through the National Flood Insurance Program (NFIP), an insurance program that operates under the federal government. However, NFIP policies only provide coverage in the amount of $250,000. If the lender you are working with requires you to have more insurance coverage for flooding, you will need to look purchasing excess flood insurance from a private insurance company.

In other words, you will have to purchase a federal flood insurance policy that is worth $250,000, as well as an excess flood insurance policy that will cover costs of damage that are above the maximum the NFIP insurance will cover.

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What Excess Flood Insurance Covers

An excess flood insurance policy should mimic the policy that you have through the National Flood Insurance Program. That means that whatever your NFIP policy covers, so should your excess flood insurance policy. So how does excess flood insurance work? The type of coverage an excess flood insurance policy will offer depends on the insurance provider; however, most standard policies offer the following:

  • Coverage beyond the $250,000 offered by the federal government to repair or rebuild your home after a flood – in most states, coverage is in the amount of $5 million.
  • Coverage to replace personal property that is valued more than the limits that are associated with an NFIP policy – in most states, the coverage amount is $2 million.
  • Money to assist with the cost of additional living expenses while your home is being repaired or rebuilt.

Properties that are Protected By Excess Flood Insurance

How does excess flood insurance work? Again, this is dependent on individual insurance companies; however, in most cases, the properties that are protected by excess flood insurance policies include:

  • Family residences – 1 to 4 families
  • Rental properties
  • Apartments
  • Condominium units and buildings

Is a Private Flood Insurance Policy Enough?

You can purchase a private flood insurance policy, and doing so will eliminate the need for a policy through the National Flood Insurance Program. However, there are some things to keep in mind if you are considering going this route:

  • Private policies are market-based, which means that they tend to be more expensive than policies offered by the NFIP.
  • Many insurance companies that offer private flood insurance will only cover properties that are valued at more than $1 million. Furthermore, the owners of the property often have to meet a specific net worth.
  • Some mortgage lenders will not accept private flood insurance policies alone. Many banks are afraid that a private policy will not meet the legal requirements that are necessary in order to be considered equivalent to the coverage that is offered through NFIP. Should that happen, the bank may have to incur losses if flooding does occur.

Is Excess Flood Insurance Necessary?

Yes; if your lender requires it. If the bank who is issuing your mortgage requires more coverage than the $250,000 provided under the National Flood Insurance Program, you will have to purchase additional flood insurance in order for your mortgage to be issued.

Companies That Offer Excess Flood Insurance

There are several reputable insurance companies that offer excess flood insurance coverage. These companies include:

  • Chubb
  • AIG
  • Burns and Wilcox
  • ACE Ltd
  • SWBC
  • Privilege Underwriters Reciprocal Exchange
  • Wright Flood

It’s important to note that if you are purchasing excess flood insurance, you want to choose a provider that also writes policies under the NFIP.

How Much Does Excess Flood Insurance Cost?

The cost of this type of coverage depends on several factors, including:

  • The location of your home.
  • The flood zone it is situated in.
  • The age of your home.
  • The elevation of your home.
  • The position of your home (inland or water-facing).
  • How close your home is situated to the water.
  • The amount of additional coverage you need.

How Does Excess Flood Insurance Work? - The Bottom Line

We hope this article on how does excess flood insurance work? was informative. An typical excess flood policy mimics an NFIP policy, so whatever the coverage is on your federal flood policy, your excess policy should cover as well.

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More Information on Flood Insurance

Floods can happen suddenly and can do tremendous amounts of damage. Following is some more useful information about flood insurance polices:

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