Does your small business have commercial flood insurance? What does it cover? Do you need it?
Due to the catastrophic storms recently developed, we wanted to take a look at commercial flood insurance. What follows are the basics you need to know about commercial flood insurance. Please contact your insurance representative and visit Fema.gov for even more information specific to your business.
Commercial Property Insurance DOES NOT Include Flood Insurance
Private insurance companies very rarely offer flood insurance, so protection from flood damage will not be included in your property insurance policy. Flood insurance is a separate insurance plan available from the federal government’s National Flood Insurance Program (NFIP).
Flood insurance is not purchased directly from NFIP. It is bought from an insurance agent, likely the one already handling your property insurance. But it’s important to understand how flood insurance really works in order to realize that your regular property insurance does not include it and you have to buy a separate plan.
Typically, there is a 30-day waiting period for new flood insurance policies to go into effect (and insurers don’t sell additional coverage during hurricane watches), so it’s too late for those recently and soon-to-be hit by hurricanes to protect their assets in this way. But it’s not too late for everyone else to learn from these tragedies to avoid the same mistake.
Flood Insurance Includes:
Flood insurance covers damage to your building and an additional plan will cover damage to the contents of your building resulting from rising waters due to:
- overflowing rivers or streams
- heavy or prolonged rain
- storm surge or hurricane
- snow melt
- blocked storm drainage systems
- broken dams or levees
- other similar causes.
However, waters from these causes must still cover at least two acres of normally dry land or affect two properties to be considered a flood and be eligible for insurance payouts.
Flood Insurance Does Not Include:
Property outside your building is not generally covered by flood insurance. Landscaping and septic systems are not covered, nor is damage to your business vehicles. Vehicles can be insured for floods through comprehensive business vehicle insurance. Commercial flood insurance does not cover financial losses caused by business interruption.
NFIP Coverage is Capped at $500,000
You can insure your building for up to $500,000 in a building/structure flood policy. You can also insure the contents of your building up to $500,000 in a separate policy. Anyone and any business in a participating NFIP community can obtain flood insurance.
The cost of your flood insurance policy depends on your geographic location. FEMA’s Flood Insurance Rate Maps (FIRMs) can tell you if you’re in a Special Flood Hazard Area.
You Can Also Buy Private Excess Insurance
If your business is worth more than $500,000 or if the cost to rebuild would exceed that amount, you might be able to purchase “Excess Flood Insurance” through a private firm on top of your NFIP insurance plan. Excess coverage sometimes includes protection against business interruption. Non-NFIP insurance markets don’t accept every risk like the NFIP does.
Flood Insurance is Sometimes Required
You are required to have flood insurance if your commercial property is in a high-risk flood area (according to FEMA maps) and you have a mortgage from a federally regulated or insured lender.
Even if your business is outside the high-risk flood area, it might be wise to have flood insurance. Moderate-risk flood areas are, well, moderately likely to flood. Furthermore, flood maps tend to be outdated and don’t account for potential flooding from man-made structures like dams and reservoirs. Flooding can happen anywhere it rains or snows. According to the NFIP, one inch of water can cause more than $20,000 in damage, and 20% of flood claims come from outside the traditional flood zones.