However, the potential benefits of private policies are compelling enough to warrant consideration, whether you currently have an NFIP policy or are shopping for flood protection for the first time. Here's why that's a good idea, as well as some pointers on how to shop for this type of insurance.

What is private flood insurance?

Though homeowners insurance has always been written privately, modern private flood insurance only became available in the United States in 2019. That is 50 years after President George H.W. Bush established the National Flood Insurance Program. It aimed to supplement disaster aid, which fell far short of covering all property losses, with insurance coverage that private companies would not or could not provide, at least not affordably, at the time. NFIP policies, which are sold by private insurers for a commission from the agency, quickly became a requirement for obtaining a federally backed mortgage for a home in a flood-prone area.

Those arrangements remain in place, and the NFIP's 5 million policies continue to dominate the flood-insurance market. However, insurance companies can now sell private policies to replace or supplement federal coverage, and mortgage lenders must accept them as a condition of lending. And insurers have been able to use an increasing volume of climatic data to assess risk and price policies in ways that are different — and, many argue, better — than using the frequently outdated FEMA flood maps that drive premiums for the federal program.

Private policies are often cheaper

“In general, private flood insurance will be less expensive,” writes Robert Murphy of Better Flood Insurance, an online broker that sells both federal and private policies. “Twenty percent to fifty percent less, and sometimes even more.” According to FEMA, the average annual premium for a federal policy is around $700, and high-risk homes can cost thousands of dollars, so the price advantage could result in significant savings.

Milliman's research paper largely supports that frequent price advantage. The actuarial and management consulting firm discovered that private insurance would result in lower premiums for 77 percent of single-family homes in Florida. The same is true for 69 percent of Louisiana households and 92 percent of Texas households.

However, Murphy writes on his company's website that there are times ("few and far between," he claims) when the NFIP will cost less, often in flood-prone areas. He also adds that a property that was previously rated lower for risk may have that assessment (and the lower premium that goes with it) grandfathered in.

Indeed, the Millman study confirms that private flood insurance isn't always the least expensive option. It discovered that some private policies cost twice as much as NFIP policies.

Policy limits can be higher than with federal insurance

An NFIP policy's typical maximum coverage limit is $250,000. According to Federal Reserve Economic Data, this is about $100,000 less than the median home price in the United States at the end of 2020.

Going with private insurance does not guarantee you a higher coverage limit than the NFIP, especially if you own a home in a high-risk flood zone. However, in many cases, private insurers can provide twice as much or more coverage — especially if your property is in a low-risk flood zone.

The limits for privatemarketflood, an online insurance broker, are a good example. The insurer claims that its coverage is identical to that of the NFIP, with the exception that it provides up to twice the coverage for a residential building — $500,000, rather than $250,000 — and more than double the coverage for contents if needed — $250,000, compared to the $100,000 limit for federal policies. (Of course, because of the increased coverage, the private policy would not necessarily be less expensive than a federal policy with lower limits.)

Private policies cover possessions more flexibly

The $100,000 total for possessions under NFIP should be sufficient for the majority of homeowners. However, federal policies limit the total value of covered jewellery, artwork, furs, and other collectibles to $2,500. Even casual art owners could easily reach that limit, and it would fall far short of what a serious collector would require.

Private insurance would allow a policy to be tailored, category by category, to the value of luxury possessions, similar to how a homeowners policy can be tailored (which, just to confirm, does not provide flood coverage.) According to Fuller and Sons, it may also provide another homeowners insurance feature that NFIP policies do not: reimbursement for living expenses in the event that flooding renders your home uninhabitable.

Private policies can be written more quickly

No matter which insurance policy you choose, it is too late to get coverage if flood-threatening weather is already on its way — or if there is a named storm far off shore that may or may not hit your area.

However, a private policy can provide protection sooner than an NFIP policy. After paying the first premium for a new policy, the federal program requires a 30-day waiting period. Some private insurers have the same requirement, but others allow you to be covered as soon as you open and pay for the policy.

Consider shopping for flood insurance through a broker.

The federal government does not sell flood insurance directly. Instead, through a WYO (Write Your Own) program, you can purchase NFIP policies from private insurance companies such as The Hartford, Allstate, and State Farm. This sales arrangement allows customers to purchase flood insurance from the same company or agent from whom they purchase other types of insurance. It may also enable you to complete less paperwork.

Flood insurance can also be purchased from independent insurance agents. A capable agent who handles both public and private types of flood insurance (not all do) and specializes in flood insurance can advise on how the various options — including the NFIP — compare to one another.

Even if you decide to buy elsewhere, the websites of these agents may contain useful tools and explanations. Better Flood Insurance, for example, has clear and useful guides to reading the FEMA Flood Maps that the NFIP uses to help determine the flood risk and premium for your property, as well as explainers for documentation like Elevation Certificates.

However, as with any other insurance purchase, be careful not to trade a lower premium for other aspects of the policy that you cannot live with. For example, before settling for a private policy with a lower premium but a higher deductible than NFIP coverage, make sure you can handle the greater upfront burden of a higher deductible.