If you live in a flood-prone area and have standard flood insurance, the coverage may not be enough. You may need excess flood coverage.
And you’ll want to figure it out before a flood occurs—doing so can protect your home and finances from mother nature’s unexpected curveballs.
Chris Black, agency principal of Chris Black Insurance and Baldwin Risk Partners, says, “Consider the potential damage a flood could cause to your home. If you live near a large body of water, especially if there is a levee or dam, consider getting excess flood insurance.”
So, how do you determine whether it’s right for you? Here’s everything you need to know.
What exactly is excess flood insurance?
The federal government’s National Flood Insurance Program (NFIP) provides a layer of protection from water disasters. So if you bought standard flood insurance through the NFIP, you’re off to a good start—keyword being “start.”
When do you need excess flood insurance coverage?
That’s because NFIP policies offer limited financial protection, which may not be enough to protect you from financial damage in the long run.
Excess flood coverage—offered through private companies—protects you from that damage. It supplements your NFIP policy and provides that extra layer to give you complete coverage, rather than partial.
3 reasons you need excess flood insurance
Here are three ways excess flood insurance can protect you.
1. The value of your home exceeds the NFIP payout limits.
An NFIP policy only covers up to $250,000 for damages to residential property and up to $500,000 for commercial property. If your home or business is worth more than these coverage limits, the bank will require you to get excess flood insurance. The bank may also require excess flood insurance if you owe more than $250,000 on your home.
2. The contents of your home are worth more than NFIP’s maximum coverage amount.
NFIP policies offer $100,000 to cover the contents of your home. If the value exceeds that limit, you won’t receive complete reimbursement. So if you own pricier possessions, you’ll want to consider the added layer of protection that excess flood coverage can provide.
3. You seek expanded coverage for items excluded from a standard flood insurance policy.
NFIP policies contain exclusions that can be costly if you don’t have excess flood insurance. For instance, standard flood insurance doesn’t provide coverage for additional living expenses should you have to live elsewhere while your home undergoes repairs.
Other exclusions with standard policies include damaged property outside the building such as decking, swimming pools, and septic tanks.
Is excess flood insurance required?
Even if you don’t want to get excess flood insurance and wish to chance it, your mortgage company might require it.
Many companies will make you purchase excess flood insurance if your home is worth more than $250,000. It will kick in once you reach the limit with the primary flood insurance, which ensure that you’re completely covered.
Excess flood insurance policies also provide loss-of-use protection. That means you’ll receive reimbursement for having to stay somewhere else while your home is being repaired.
Your mortgage company will require you to submit proof of insurance each year. If you let your policy lapse, the company will usually give you 30-45 days to provide proof of renewal.
If you fail to do so, they will purchase excess flood insurance for you and then bill you.
Is excess flood insurance expensive?
The rates vary. The insurance company determines how much you’ll pay based on the following factors.
- How much coverage you want/need to buy.
- The location of your home and if it’s in a flood zone (check here).
- How far your home is from a body of water, such as the ocean or a lake.
- The age of your home.
- The elevation of your house.
- If your home is a condo or townhome, and on what floor it’s located.
- Which way your building faces (the ocean or inland).
- How much deductible you want to pay.
Excess flood insurance exclusions
Excess flood insurance will only apply if your home becomes involved in an actual flood. If your home floods, but no other homes in your area do, that isn’t categorized a flood.
To qualify as a flood, the flooding must affect at least two homes and/or two acres. Basements are also tricky because of their low-lying location. Damage to basements and their contents are generally not covered.
Other items excluded from flood insurance coverage:
- Cash and valuables like art and jewelry.
- Lost rental income on an investment property.
- Homes located in areas that insurers consider excessively risky.
Preparation helps prevent excessive flood loss
Of course, it’s ideal if you can prevent flood damage from occuring. While you can’t control Mother Nature, you can prepare ahead of time. Put a risk management plan in place to protect yourself.
Home improvements that protect you from flood damage have the additional benefit of lowering your flood insurance rates. For instance, increasing the freeboard height of your home by 3 feet could reduce your monthly flood insurance premium by $266 according to a report by FEMA.
Do an inventory of your valuables and consider ways you can protect them if flooding occurs. For instance, storing the items in elevated locations in the home. You may also wish to buy a waterproof safe.
Tips for buying excess flood insurance
Even with its limitations, excess flood insurance is a smart purchase.
Says Black, “We recommend that all homeowners carry flood insurance and that some carry excess as well. The fact is that 25% of all floods happen in low-risk areas. And considering that 90% of all natural disasters include excess water, flooding can occur anywhere.”
To decide how much coverage you need, consider the worth of your home. Also, look at how much money you invested in your house and what it would take to cover that amount.
Make sure to shop around and compare top flood insurance companies side-by-side to find the best policy for you.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.