What Is Excess Flood Insurance and Is It Really Necessary?

If you're reviewing your flood insurance quotes and getting ready to sign, you may notice something confusing. One quote includes something called excess flood insurance, while other quotes only provide the standard $250,000 in building coverage.

Naturally, that raises an important question:

If everyone else is quoting $250,000 in coverage, why would I need excess flood insurance?

At Flood Insurance Guru, we've helped thousands of homeowners, investors, and business owners navigate flood insurance decisions. One of the most common questions we receive is whether excess flood insurance is worth the additional cost.

The answer depends on your property's replacement cost, your financial risk tolerance, and what would happen if a flood loss exceeded the limits of your primary flood policy.

In this article, we'll explain what excess flood insurance is, when it makes sense, and why we've seen many property owners turn to SBA disaster loans after discovering they didn't have enough flood coverage.

Key Takeaways

• Excess flood insurance provides coverage above standard flood insurance limits.
• Many lenders only require minimum flood coverage, which may not be enough to fully rebuild after a major flood.
• We've seen property owners take out SBA disaster loans because they chose lender-required coverage instead of adequate coverage.
• Flood events such as Hurricane Ian, Hurricane Debby, and major flooding in Birmingham, Alabama highlighted the dangers of being underinsured.
• The decision should be based on replacement cost, not just lender requirements.

What Is Excess Flood Insurance?

Excess flood insurance is additional flood insurance coverage that sits above your primary flood insurance policy.

For example, a standard NFIP policy generally provides:

• Up to $250,000 in residential building coverage
• Up to $100,000 in personal property coverage

If rebuilding your home would cost more than those limits, excess flood insurance can help bridge that gap.

Think of excess flood insurance as a second layer of protection that activates after your primary flood insurance policy has reached its limit.

Before we go further, watch this short video explaining how excess flood insurance works.

Related Reading: What Is Excess Flood Insurance?

Why Do Some Flood Insurance Quotes Include Excess Coverage?

Not every insurance agency evaluates risk the same way.

Some agents focus solely on meeting lender requirements. Others evaluate:

• Replacement cost
• Property value
• Construction costs
• Potential out-of-pocket exposure after a flood

As a result, you may receive one quote that simply meets your lender's requirements and another that is designed to protect the full value of your investment.

Is Excess Flood Insurance Really Necessary?

The better question may be:

Could you afford the financial gap if a flood loss exceeded your policy limits?

For some property owners, the answer is yes. For others, especially those with higher-value homes or investment properties, that gap could be financially devastating.

Excess Flood Insurance vs. Private Flood Insurance

One thing many property owners don't realize is that excess flood insurance and private flood insurance are not necessarily the same thing.

Private flood insurance often replaces an NFIP policy entirely and may provide higher limits from the start.

Excess flood insurance typically sits on top of an existing flood insurance policy and provides additional protection once the primary limits have been exhausted.

Watch the video below for a more detailed explanation.

Related Reading: Excess Flood Insurance vs. Private Flood Insurance

What Happens When Flood Coverage Isn't Enough?

One of the biggest misconceptions we see is that lender-required flood insurance equals adequate flood insurance.

Unfortunately, we've seen many situations where that simply wasn't true.

The St. Louis Investor Who Chose Bank-Required Coverage

One example that stands out involved a real estate investor in the St. Louis area.

The investor had the option to purchase additional flood insurance coverage but chose only the amount required by the lender.

After experiencing flood damage, the insurance proceeds weren't enough to cover the full scope of repairs.

Instead of insurance covering the difference, the investor was forced to pursue an SBA disaster loan to help bridge the funding gap.

While SBA disaster loans can be an important recovery tool, they're still loans that must be repaid.

Related Reading: Flood Insurance Options on SBA Disaster Loans

We've Seen Similar Situations Across the Country

This wasn't an isolated event.

Following major flooding events, we've seen numerous property owners discover their flood insurance limits didn't align with their rebuilding costs.

Examples include:

• Severe flooding in Birmingham, Alabama
• Hurricane Ian in Florida
• Hurricane Debby across South Georgia

In many of these situations, property owners believed they were adequately protected because they had flood insurance.

The reality was that they had flood insurance, but not enough flood insurance.

When policy limits were exhausted, many homeowners and investors were forced to explore SBA disaster loans, savings accounts, home equity, or other financing sources to complete repairs.

Related Reading: What Is the Difference Between Disaster Assistance and SBA Loans?

Insurance Pays First. Loans Fill The Gap.

One lesson we've seen repeatedly is this:

You can either insure against the gap before a disaster or finance the gap after a disaster.

While excess flood insurance may not be necessary for every property owner, understanding your potential coverage gap before a flood occurs can help you avoid difficult financial decisions later.

How Do You Know If You Need Excess Flood Insurance?

Consider the following questions:

• What would it cost to rebuild your property today?
• Does your flood insurance limit match that amount?
• Could you comfortably absorb a six-figure gap after a flood?
• Would you qualify for and be willing to take on an SBA disaster loan?

If those questions make you uncomfortable, excess flood insurance may be worth exploring.

Frequently Asked Questions About Excess Flood Insurance

What is excess flood insurance?

Excess flood insurance provides additional flood coverage above the limits of a primary flood insurance policy.

Is excess flood insurance required?

Usually no. Most lenders only require enough flood insurance to satisfy lending requirements.

Is lender-required flood insurance enough?

Not always. We've seen many situations where lender-required coverage left significant gaps after major flood losses.

Can SBA disaster loans replace flood insurance?

No. SBA disaster loans are borrowed funds that must be repaid, while flood insurance is designed to provide claim payments after covered flood damage.

How do I know if I need excess flood insurance?

Compare your replacement cost to your flood insurance limits. If there's a significant gap, excess flood insurance may be worth considering.

The Bottom Line on Excess Flood Insurance

At the end of the day, the question isn't whether excess flood insurance is required.

The question is whether your current flood insurance limits adequately protect your investment.

We've seen firsthand how homeowners and investors in places like St. Louis, Birmingham, Florida, and South Georgia have struggled financially after discovering their flood insurance wasn't enough.

Now that you understand how excess flood insurance works and the risks of being underinsured, your next step is to evaluate your property's replacement cost and compare it to your current flood insurance limits.

If you're unsure whether excess flood insurance makes sense for your situation, the team at Flood Insurance Guru can help you evaluate your options and identify any potential coverage gaps before the next flood occurs.

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About the Author

Chris Greene is the owner of Flood Insurance Guru and has spent more than a decade helping homeowners, investors, lenders, and real estate professionals understand flood insurance, flood zones, and flood risk management across the United States.