The Murzzy Blog
In an earlier post, we explained how insurance defines flood differently than how a flood is defined in the dictionary. Additionally, we explained that flood damage is not covered by home insurance, though a few insurance companies are now offering flood insurance endorsements. Finally, we discussed different flood insurance options such as the National Flood Insurance Program (NFIP) and private flood insurance policies. In this blog, we will explain how to shop for flood insurance by properly balancing rates and coverage.
NFIP - Good Option But Comes With Coverage Gaps
The National Flood Insurance Act of 1968 established the National Flood Insurance Program (NFIP) to be managed by the Federal Emergency Management Administration (FEMA). Congress felt that such a program will promote "public interest" by protecting against flood losses, encourage "sound land use," and uniform "floodplain management." More details about the history and evolution of the NFIP can be found here. Overall, the NFIP has done its job but, especially since Hurricane Katrina, it has cost the taxpayers money. There are valid arguments for keeping or phasing out the NFIP that are worth considering.
Property owners should understand that the NFIP does not work like home insurance because it has specific limitations that leave gaps in coverage. For example, NFIP limits building coverage to $250,000 on a replacement cost basis and contents coverage to $100,000 on an actual cash value basis (ACV). The difference between replacement cost and ACV is crucial to understand. Furthermore, coverage is limited to only those property owners whose local communities are participating in the NFIP. Lastly, there is a 30-day mandatory waiting period before coverage can begin.
Private Flood Insurance - An Opportunity to Close the NFIP Gaps
One important advantage of the NFIP is that it is backed by the federal government so it does provide a comfort level for many people. NFIP policy holders, in order to address potential gaps in coverage, will need to purchase a separate excess flood insurance policy from a private insurance company. This means that property owners have to maintain 3 policies, a shopping and administrative nuisance.
Purchasing private flood insurance allows property owners to get total flood protection from 1 flood policy without NFIP gaps. Such policies can cover building and contents on a replacement cost basis, have one policy deductible, and come with minimal or no waiting periods.
An even simpler option is to find a homeowners (HO) policy that offers a flood insurance endorsement. This means that all of the risk associated with a home is covered under 1 policy. Insurance companies offering this option are limited and proper care must be taken to ensure that the flood endorsement comprehensively covers against flood risk.
As you can see, protecting against flood risk is not a simple process. It requires an understanding of the various flood insurance limitations and options available in the insurance marketplace. It is best to consult with an independent insurance agent or broker because they work for their customers not insurance companies. Hence it is their responsibility to shop for the best possible rates and coverage. The table below summarizes the differences between NFIP, private flood insurance, and flood insurance endorsements.
Points to Remember
Contact us at Murzzy to help you navigate the flood insurance market. We are independent so we work for you and not any insurance company. With Murzzy, your choice does matter! Call our experts at (813) 327-4900 or email us at firstname.lastname@example.org
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