Private Flood Insurance vs. FEMA

Standard homeowners insurance policies provide coverage for a number of different perils, but flooding isn’t one of them. For that, you’ll need separate flood insurance, and you have two options: private flood insurance or government-subsidized insurance from the Federal Emergency Management Agency’s National Flood Insurance Program (NFIP).

If you think you don’t need flood insurance because you don’t live near water, consider this: 40% of all NFIP claims are filed for damage to a property outside of high-risk areas, according to FEMA.

What is private flood insurance?

Private flood insurance is sold directly to consumers by private insurance companies. As the name implies, it reimburses the policyholder for any covered flood damages to their property. You can purchase it to cover both residential and commercial properties.

Although direct sales weren’t common in the past because of the level of risk flood insurers take on, a report from the Congressional Research Service issued last year notes that new risk-assessment techniques have encouraged an increasing number of home insurers to enter the consumer flood-insurance market.^[1]

In fact, the number of net premiums written for private flood insurance nearly doubled from 2016 to 2021, according to the Insurance Information Institute (III), citing data from the National Association of Insurance Commissioners.^[2]

Private flood insurance policies, also known as “first dollar” or “primary flood insurance,” can offer higher coverage than NFIP policies, according to the III. They can also provide more types of coverage, such as additional living expenses and coverage without a waiting period.

The downside is that private flood insurance isn’t available in all areas and can sometimes be difficult to find. If your mortgage lender requires that you have flood insurance, you’ll need to make sure it meets the lender’s standards before buying a policy.

How much does private flood insurance cost?

The average annual cost of private flood insurance is $700 per year, according to FEMA.^[3] The rate you end up paying will depend on various factors, including the type of coverage, the location of your home, the age and design of your home, and whether the home is located in a high-risk area.

For example, consider the following policy quote for a property located in coastal Maryland in an AE zone, which is considered high-risk. The quote, from Neptune Flood Insurance, includes $300,000 of coverage for the structure, $100,000 of replacement-cost coverage for personal property stored inside the structure, and $7,500 in additional living costs. It costs $817 per year with a $1,000 deductible.

Excess flood insurance is a private-insurance option for some homeowners who have NFIP insurance but want to increase their coverage above NFIP limits.

What is FEMA flood insurance?

FEMA flood insurance is government-subsidized insurance issued under the National Flood Insurance Program. Established by Congress in 1968, the NFIP is a cooperative partnership between the federal government, the insurance industry, local governments, lenders, and property owners.

The NFIP is the primary source of flood insurance in the U.S. and is available in communities that participate in the program. FEMA lists the communities in a Community Status Book located on its website. If eligible, you can purchase the insurance from a participating insurance company or an independent agent. A good first step is to contact your insurance agent and see if they can write you a policy. If they’re unable to provide a policy, you can use FEMA’s flood insurance finder. Just select your state from the drop-down menu to view a list of providers and their phone numbers.

Unlike private insurance rates, which are set by the insurer, FEMA flood insurance rates are determined by a rating methodology called Risking Rating 2.0. Rates are determined by the value of your home and how prone your community is to flooding. You don’t have to shop around — you’ll get the same rate no matter where you buy your policy. FEMA says policies start at less than $400 per year.

How much does FEMA flood insurance cost?

The average FEMA homeowners flood insurance premium is about $500 per year, according to the Maryland Insurance Administration.^[4] Note that “average” includes the least and most expensive properties, as well as both the lowest and highest-risk areas. Your specific rate may differ significantly from the average.

Although it does cover replacement cost and not merely depreciated value, the primary drawback of FEMA flood insurance is that coverage is limited by law. It covers your structure for up to $250,000 and the contents of your home for up to $100,000, usually with a separate deductible for each.

Commercial properties can be insured for up to $500,000 for the building and $500,000 for the contents.^[5] If you need more coverage than that, you’ll have to purchase an excess flood insurance policy from a private flood insurance provider.

Be aware of the 30-day waiting period with FEMA flood insurance. Once you purchase your policy, you’ll have to wait 30 days before it goes into effect. Don’t wait until a storm is approaching to buy it.

Do you need flood insurance?

There’s no law requiring you to purchase flood insurance, but your lender may require it if you live in a high-risk flood zone. But flood insurance can be very useful, no matter where you live. River and coastal flooding are among the most common types of flooding, according to FEMA, but they’re just two of many causes.

A significant amount of flood damage actually occurs outside of the highest-risk areas. FEMA cites heavy rain, poor drainage, and nearby construction projects as potential causes. The cost of insurance is relatively inexpensive compared to the cost of fixing flood damage without insurance. Just one inch of water can cause $20,000 or more in damage to your home.

While it’s optional for many homeowners, certain circumstances might require you to have flood insurance.^[6] If your home is in a high-risk flood zone, which is defined as having a 1% or higher annual risk of experiencing a flood — and it’s financed with a government-backed mortgage, such as a VA, FHA, or USDA loan — your lender will require that you carry flood insurance. In some cases, the lender might require it even outside of the high-risk zones, according to FEMA.

Anyone who has received FEMA assistance or a disaster loan from the Small Business Administration must also carry flood insurance. Otherwise, you won’t be eligible for federal disaster assistance in the future.

Flood insurance FAQs

Here are answers to some commonly asked questions about flood insurance.