Excess flood insurance extends the coverage provided by the government’s National Flood Insurance Program (NFIP). Typically offered by private insurers, it is useful for those who own homes that would cost more than $250,000 to rebuild.
This is the maximum amount that the NFIP will cover in the event of a flood. Without excess flood insurance, homeowners will have to pay out-of-pocket for the repair and renovation costs beyond that limit.
Excess flood insurance is especially useful for property owners that live in areas with high flood risk. But there are other instances wherein this type of insurance can be helpful.
When is excess flood insurance necessary?
The most common reason to get excess flood insurance is if the cost of rebuilding exceeds $250,000. With high-value properties, the mortgage lender may actually require your client to purchase excess flood insurance.
Of course, some homes will require flood insurance regardless, particularly if they are situated in designated special flood hazard areas (SFHAs) or if a federal agency provides their mortgages. In such cases, lenders will almost always require the owner to have standard flood insurance that covers the least of these expenses:
- The cost of rebuilding the home
- The mortgage balance
- The NFIP coverage limit ($250,000)
But if your client’s home costs more than $250,000 to rebuild or if the mortgage balance is more than that amount, lenders may require additional coverage beyond the NFIP limit.
Keep in mind, though, that this isn’t a legal requirement. This means that not all lenders will require your client to purchase excess flood insurance. Even if the home’s rebuild cost exceeds the NFIP maximum coverage, some lenders may still approve the mortgage.
Even so, it might still be beneficial for your client to purchase excess flood coverage, especially if the property is located in a high flood-risk area. In most such places, there is a 26% chance of flooding at some point during a 30-year mortgage period. That being the case, your client may have to pay the excess rebuild cost if it exceeds the NFIP’s maximum limit.
If your client isn’t sure whether to get excess flood insurance, advise them of the risks of inadequate coverage. Depending on the circumstances, it might be better to pay for added protection and not use it than to have none when needed.
When is excess flood insurance unnecessary?
There are some cases wherein excess flood insurance isn’t necessary. If the cost of rebuilding the home is less than $250,000, the coverage provided by the NFIP may be sufficient.
Your client may opt to forgo excess coverage if the home isn’t located in a high flood-risk area. In this particular situation, the added coverage may be an unnecessary expense.
How much coverage does excess flood insurance provide?
Excess flood insurance covers pretty much the same risks as NFIP insurance. Specifically, it covers the repair or replacement of the home, including its structure and essential components. Excess flood insurance will cover the damage as long as it is caused by flooding, whether from rain, tidal waves, hurricanes, or other incidents.
Excess flood insurance will also cover the cost of lost or damaged personal property, including clothes, furniture, and electronic devices. However, your clients need to note that NFIP insurance provides a separate personal property coverage limit of $100,000.
In addition, belongings stored in cellars and basements are subject to coverage limitations. This is because such items are at a higher risk of being damaged by floodwaters.
In some cases, excess flood insurance may provide coverage beyond that offered by the NFIP. Additional coverage may include the following:
- lost income
- additional living expenses (ALE)
- flood prevention costs
Remember to inform your client that not all providers will offer these additional coverages. It is advisable to check with different providers to determine whether a particular risk is covered.
The limits of excess flood insurance
Excess flood insurance isn’t legally subject to maximum coverage limits. This means that the amount covered depends on the insurer in question. In some cases, coverage can even reach several million dollars.
Alternative to excess flood insurance
If your client prefers not to obtain excess flood insurance, private flood coverage insurance might be a feasible alternative. This may even be used to augment NFIP and excess flood insurance.
Some of the benefits of this option are:
- shorter (or no) waiting periods
- lower rates
- the simplicity of managing only a single policy
It would be best to go over all available options with your client. They can then decide which insurance policy‒or combination of policies‒benefits them the most.
About Snyder Specialty
Snyder Specialty, LLC is a New York-based underwriting facility that provides a range of property and liability solutions for personal and commercial lines. Specializing in coastal properties and hard-to-place risks, Snyder Specialty expands your current capabilities with proven solutions for complex risks. Find out more about the company’s range of services by calling (718) 362-8039.
