Flood insurance coverage is something that all insurance agents and homeowners should know very well. Keep it close to the chest when it comes to fully understanding the extent of what you're writing on your policy.

Replacement Cost Versus Actual Cash Value

In today's episode, we want to tackle flood insurance coverages; specifically how replacement costs can be different from the actual cash value (ACV) and the dangers of choosing one thing from another.

What's the Difference?

When it comes to writing your flood insurance policy, you should be able to know which is the best option between replacement costs and ACV. Most insurance carriers provide homeowners with the ability to either opt into replacement costs or ACV.

But what is the difference between the two?

Replacement cost — from the phrase itself which is very self-explanatory — is the amount given to the insured in order to fully restore and/or rebuild the property after being damaged.

Let's give an example, if you choose to get replacement cost for your flood insurance for a home that's worth $240,000, then you will be able to get this exact amount from your insurance provider. In the NFIP, coverages actually max out at $250,000 building coverage and there are no amount limits in the private flood insurance market.

On the other hand, actual cash value (ACV) is a different story. This time around we won't be talking about the exact amount needed to fully restore your insured building, but its exact value in actual money.

This is calculated by using the replacement cost value of the property subtracted by depreciation. This means that the overall depreciation of the value of your insured building will be the sole basis of how much you'll be getting.

Replacement Cost Versus Actual Cash Value

This means that one way or the other, you won't be getting $240,000 on your insurance if you choose ACV. This is why choosing Actual Cash Value is dangerous for homeowners because you're getting less than what you really need.

How to Know Your Coverage

There are two ways to make sure that you won't get blindsided when your flood insurance claim pays out.

The first way to make sure that you don't get ACV in your insurance is by checking the policy. You want to make sure that you get to read your flood insurance policy very well before you proceed on purchasing it, and also make sure that you have replacement costs as your coverage option.

You can ask your insurance agent to help you with this and it's pretty easy for them to determine this. A great insurance agent will make sure that the policy you have is under replacement cost coverage.

Another thing you want to make sure of is that you're following the 80% rule. Both FEMA and private flood insurance have this type of rule. The rule states that you must ensure your property for at least 80% of its cost.

By following the 80% rule, you can have the assurance that you won't be getting a significantly lower amount of coverage when your policy starts to payout.

If you want to learn more about flood insurance coverages, how to manage your flood policy, or anything related to flood insurance, you can click below to access our Flood Learning Center where we answer your flood and insurance questions.

Flood Insurance Guru | Service | Knowledge Base

You can also click on this picture below to contact us and discuss your flood insurance concerns.

The Flood Insurance Guru | 2054514294

Remember, we have an educational background in flood mitigation which lets us help you understand your flood insurance, how it can be managed, flood risks, and mitigating your property to preserve its value long-term.

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You were told your home would never flood but now you are looking at 4 feet of water in your home.



It was recently determined that roughly 1 inch of water can cause $21,000 in damage.

So as you can imagine 4 feet of water could be a total loss.

This is exactly what happened to multiple customers of ours after the flooding in Centre Alabama in 2019.

While these residents had the coverage to replace their homes not everyone is as lucky.

Today we want to discuss what is flood replacement cost and what is actual cash value?

First of all replacement cost is the amount of money an insurance carrier feels it would take to rebuild your home.

So then what flood actual cash value? This is the replacement cost-depreciation.

As you can imagine after depreciation this can leave a pretty big difference.

Most of the time actual cash value does not come close to being enough coverage to rebuild your home. Time and time again we have seen property owners have to take out loans to cover the difference just to get their home rebuilt.

This is exactly what happened to many flood victims in the Tulsa Oklahoma area after the 2019 flood. Many of these residents only insured their properties for the amount they owed the bank. The problem is that this didn't give most property owners half the coverage they needed.

So what if full replacement coverage is not available?

This is common with National Flood Insurance Program policies as residential policies max out at $250,000.

In order to make sure you get replacement coverage up top $250,000 you need to follow the 80% rule.


This means you insure the home for at least 80% of the replacement coverage or $250,000.

What about private flood insurance companies?

Now each company has a different guideline. Some go off the 80% rule and some don't. The benefit is private flood insurance can offer much more coverage some times into the millions.

So if you have questions about flood replacement coverage then click here.

If you want to learn more about flood insurance then make sure to check out our podcast or our YouTube channel where we do daily flood education videos.

Remember we have an educational background in flood mitigation. This means we can help you understand your flood risks, flood insurance, and mitigating your property long term.


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Over the past month I have done a lot of traveling shooting flood education content. On those travels I have been in places that have been hit hard by flooding over the last few years. I traveled to Houston, Galveston, and Wimberly Texas. These areas have all see major flood damage over the last few years.

These areas also house many secondary and vacation homes for property owners. Some of these properties have seen minor flooding and some have seen major flooding. Many of these areas have seen loss of life as a result of flooding.

Blanco River flooding Wimberly Texas

As Tropical storm Beta approaches these areas and is expected to drop large amounts of rainfall and storm surge we want to look at what you can expect when it comes to your Texas flood insurance policy.

Through out these two areas in Texas people have two different types of flood insurance. They have the National Flood Insurance Program and they have private flood insurance. These two programs can be pretty different when it comes to coverages. Most people jump to the private flood insurance market when they can because it's cheaper and you can get better coverage. I think many people through our Port Aransas, Houston, and Galveston will tell you to read your policy.

galveston Texas coast

We mentioned earlier many of these properties are secondary or seasonal properties. What you may not know is many private flood insurance companies default to an actual cash value basis on these policies.

So what exactly does that mean for your Texas property?

Well it means you won't generally get the full amount on your policy. If you have a $250,000 flood policy you may only get $125,000. That could be a big surprise couldn't it. Thats exactly what happened to a lady in Houston after hurricane Harvey hit. She had a $150,000 flood policy that only paid out $15,000.

So you ask why?

Well she did not insure to 80% of replacement cost or the $250,000 max that the National Flood Insurance Program offers so her policy defaulted to actual cash value.

Thats a big shocker. So when you are setting up this flood insurance policy or if you ever change your flood insurance policy in Texas you want to have your insurance agent highlight these areas of the policy. When switching private flood insurance carriers make sure you are truly getting replacement cost on your policy up to the amount you have listed on the policy.

Maybe you don't have an agent that has done this or you don't have an agent at all?

Then click here and we will be glad to do a review with you.

While there are multiple options for flood insurance in Texas you want to make sure you are getting the policy that is right for you.

So if you live in Texas and want to learn more about your flood insurance options then make sure to check out our daily flood education videos on our YouTube channel. You can also checkout our podcast for this video here.


Remember we have an educational background in flood mitigation. This means we can help you understand your flood risks, flood insurance, and mitigating your property to help you minimize flood losses and flood premiums.


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