Excess Flood Insurance: What Is It? Who Needs It?

Excess flood insurance is a type of private flood insurance that goes beyond the 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 purchasing excess flood insurance, especially if they live in a high-risk flood zone.

Who needs excess flood insurance?

If you own a high-value home that would cost more than $250,000 to rebuild, your mortgage lender may require you to purchase excess flood insurance.

Flood insurance is generally required for homeowners who live in special flood hazard areas (SFHAs) and have federally backed mortgages. If you fit this description, every lender will require you to have flood insurance that covers the smallest of these three:

• The price of completely rebuilding your home
• The amount owed on your mortgage
• The NFIP insurance coverage limit is $250,000

However, if the rebuild cost (or mortgage) of your home exceeds $250,000, your lender may require you to purchase additional coverage above the NFIP maximum. Because it is not a legal requirement, not all lenders will require you to purchase excess flood insurance. Even if your NFIP flood insurance does not fully protect you, you may be able to find a lender who will give you a mortgage.

Even if you are not required to purchase excess flood coverage, it may be worthwhile to do so, especially if you live in a flood-prone area. Over the course of a 30-year mortgage, special flood hazard areas have a 26% chance of flooding. If your home is completely destroyed and the $250,000 is insufficient to cover the costs of repairing or rebuilding it, you will be responsible for the remaining costs. Before deciding whether to purchase excess flood insurance, carefully weigh the risks against the cost of coverage.

Who doesn't need excess flood insurance?

Most people do not require additional flood insurance. You don't need it if your home's replacement value is less than $250,000, in which case the NFIP will provide adequate coverage. Furthermore, we do not recommend excess flood coverage if your home 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 in the same manner as regular flood insurance rates. The cost of excess flood insurance will vary depending on the coverage limits you select, whether you choose coverage up to actual cash value or replacement cost value, and the overall flood risk of your home. Flood risk is calculated using a complex formula based on several criteria. These are some examples:

• Your home's elevation above the base water level
• Distance from a body of water
• Structure of the foundation (e.g., basement, crawl space, slab)
• Elevation of your home's lowest point in relation to ground level
• Material for home construction

Unlike the NFIP, each excess flood insurance provider sets its own rates. This means that prices will vary from company to company, and you should shop around for the best deal on coverage.

What does excess flood insurance cover?

Excess flood insurance covers the same types of damage and expenses as standard NFIP flood insurance. This includes repairing or replacing your home's structure and essential systems if they have been damaged by flooding, whether caused by a rainstorm, tsunami, hurricane, or other natural disaster.

Personal property in your home, such as clothing, furniture, and electronics, is also covered by excess flood insurance. Keep in mind, however, that personal property coverage in NFIP insurance has a separate $100,000 limit. Furthermore, because basement items are more likely to be damaged during a flood, they are frequently subject to restrictions.

Some excess flood insurance providers may also go above and beyond what the NFIP covers. This could include compensation for lost wages, additional living expenses (ALE), and even flood-prevention costs such as sandbags. However, the availability of these coverages varies by insurance provider, so shop around if you need a specific coverage.

Excess flood insurance coverage limits

Excess flood insurance has no legal maximum coverage limit. As a result, the maximum amount of coverage that a specific excess flood insurance provider may offer is determined by each company. The maximum coverage limits can reach millions of dollars. Chubb, for example, provides up to $15 million in combined coverage for your home and its contents.

An alternate option: Completely private flood coverage

A completely private flood insurance policy is an option for homeowners who want or need coverage above the $250,000 NFIP limit. This is an alternative to purchasing NFIP coverage and supplementing it with an excess flood policy. A fully private policy and a combined NFIP/excess coverage policy provide many of the same benefits, but there are some distinctions to be made.

One of the most significant advantages of a private-only policy over an NFIP/excess combination is that private policies have a shorter — or no — waiting period.

A single flood policy from a private insurer may also have lower rates than separate private and public policies. Another advantage is the reduced complexity of managing only one policy: there is only one bill to pay and only one claim to make.

Purchasing excess flood coverage and NFIP coverage instead of a single private policy, on the other hand, allows you to reap the benefits of both a private and a government-backed flood insurance policy. Because of the high risk, the $250,000 allotment you have through the NFIP cannot be canceled or nonrenewed. Furthermore, the government establishes NFIP rates using a formula. You will also meet your lender's flood insurance requirements if you choose a public/private combination.

Most importantly, both options will cover the entire value of your home, often up to millions of dollars. We recommend that homeowners considering excess flood coverage obtain quotes from multiple insurers for both an excess policy and a completely private policy, and then decide which option best meets their needs.