Should I buy NFIP flood insurance or a private flood policy for my apartment building?

The National Flood Insurance Program (NFIP), administered by FEMA, provides flood coverage for commercial buildings up to a maximum of $500,000 for the structure and $500,000 for contents, per the FEMA NFIP Flood Insurance Manual. For any apartment building with a replacement cost above $500,000, which includes virtually all but the smallest properties, NFIP coverage alone is inadequate.

Private flood insurance has expanded significantly since the Biggert-Waters Flood Insurance Reform Act of 2012 and the subsequent NFIP Reauthorization Act encouraged private market participation. Private flood policies can offer limits of $10,000,000 or more, replacement cost valuation (versus the NFIP's replacement cost coverage that caps at the policy limit), broader coverage terms including loss of rents and basement improvements, and potentially lower premiums for properties with favorable elevation or loss history.

Fannie Mae's Multifamily Selling and Servicing Guide accepts private flood insurance provided the policy meets the definition of private flood insurance under 42 U.S.C. Section 4012a(b)(7) or the lender determines the policy provides coverage at least as broad as an NFIP policy. Freddie Mac's Seller/Servicer Guide contains a similar acceptance framework. Most apartment owners in flood zones use a layered approach: an NFIP policy for the base $500,000 plus a private excess flood policy to reach the full replacement cost. Alternatively, some owners purchase a single private flood policy for the full amount if the private carrier's terms and financial strength ratings meet lender requirements.