Flood Insurance: When is the private market right for you?

Over recent years, more and more people found the National Flood Insurance Program was not the best option to protect their home and property. Premiums have seen a steady rise, while coverage for many is insufficient. For those whose needs aren’t met by NFIP, Private Flood Insurance has become an option to reduce the cost of flood insurance premiums or increase coverage. While private flood insurance is a valuable asset for many, there are a number of important considerations when deciding whether a policy in the public or private flood insurance market is the best choice for you.

  1. Frequent Flood Victims.
  2. Grandfathered NFIP Clients.
  3. Current Pre-Firm NFIP Clients.
  4. Are about to sell your home? 

1. Frequent Flood Victims:

If you have previous claims for flood damage, be careful before switching to the private market. Most private flood insurance companies will not insure a home or building with prior flood losses. If you had undisclosed losses and a claim arises, the claim may be denied. Some carriers will write for customers with five years or ten years of clean history, so be sure to disclose every loss and let your agent go to work for you.

2. Grandfathered NFIP Clients:

If you have a grandfathered public insurance policy, private flood coverage may not be your best option.  Grandfathered policies typically have better rates and a guaranteed lock in the federal program. Many people are grandfathered into X zones for which their homes qualified when the policy was first written, even if they now are now in the VE or AE (coastal high hazard) zones. If you move to private insurance and are non-renewed for a major claim or shift in the market, you will have to go back to the federal program at the full price, which could be 2-3 times the cost of your grandfathered policy.

3. Current Pre-Firm NFIP Clients:

If you have a pre-firm subsidized rate and are currently carrying NFIP insurance, private flood insurance may not be right for you (this does not apply to new home owners). Pre-Firm rates apply to homes built before 1971. If a person voluntary gives up their insurance in the NFIP and later reapplies, they will need to provide an elevation certificate and will be rated based on the actual elevation of their home. For most people living in homes built before 1971, this will result in a higher flood insurance premium.

4. Potential home-sellers:

Private flood insurance, unlike federal flood, is not transferrable from one owner to another. If you plan to sell your home within three months, you may not receive a full refund. If you are in a VE zone it may be difficult for your buyer to secure the same deal you have, which might affect the desirability of your home.

While you can always pursue Private Flood Insurance, you and your agent should ensure you have the right insurance for your home, business or rental property. While saving $500 or even $5000 on flood insurance is exciting, you should always work with someone who understands both the short- and long-term implications of any policy. A qualified independent agent will ensure your policy meets your needs, offers the best value and doesn’t cost you more during a claim or renewal.

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