While the gap between the difficulties of writing NFIP flood and writing private flood narrows with the recent implementation of NFIP Risk Rating 2.0 there are still several differences that can make a difference for your client.

NFIP still only offers a maximum building limit of $250K for residential and $500K for commercial.  The only time NFIP offers replacement cost on building coverage is for a primary single family home that is lived in by the owner 80% of the year with coverage 80% to value or max limits of the program.  All other building coverage is actual cash value.  Contents overage is always actual cash value with the NFIP.  There is no loss of use coverage available, basement coverage is limited and other building coverage is limited to a detached garage used for parking or storage only.  And that latter coverage is only 10% of the dwelling coverage and included as part of the dwelling coverage.

The private market offers broader coverage options, increased limits and single deductibles.  Some of those broader coverages are often al cart so that if you need them you can buy them and if you don’t you aren’t paying extra for unused coverage.  Some examples are simple coverages include can be loss of use, replacement cost for contents and other buildings on you property like a shed being covered.  Some private flood policies respond like an HO policy for the perils of flood.  These policies may have available or include additional coverage for basements, pools, Law and Ordinance coverage, trees and shrubs or other structures as a separate limit.  And we haven’t even touched on the higher limits, going up to $1.5M in building coverage with 50% up to of coverage A for contents coverage (whispers “at replacement cost”).

There are times when NFIP is going to be the only choice and today one of those times that comes to mind is when your client has or is getting an FHA loan on their home.  FHA will not accept a private flood policy when coverage is required.  HOWEVER, with any other lender, as long as the private flood policy you are writing is as good as or better than the NFIP offering then lenders must accept the private policy. This was mandated by the Biggert – Waters Insurance Reform Act of 2012.  The private flood policy, if compliant, will have the following language in the policy;

“This policy is hereby guaranteed to meet the statutory definition of private flood insurance contained in 42 U.S.C 4012a(b)(7), in all respects; therefore, to the extent that any provision within the Policy fails to meet the statutory definition of private flood, such provision is hereby amended to conform to the minimum mandatory requirements of the statutory definition.”