Commercial Flood Insurance for Business

Lucy Lazarony
November 3, 2020

Commercial flood insurance protects your business from damages caused by flooding. Commercial flood insurance protects the physical location of a business and the contents within. Commercial flood coverage is not included in a commercial property insurance policy. So you will have to purchase a separate policy. Insurance companies provide flood insurance through the federal government’s National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency (FEMA). NFIP was established by the U.S. Congress in 1968 to protect property owners from financial losses due to flood damage. What does commercial flood insurance cover? There are numerous items that are part of the building coverage of the flood insurance policy. These include: electrical and plumbing systems, furnaces and water heaters, appliances, carpeting, cabinets, paneling, bookcases, windows, foundation walls, staircases, detached garages, well tanks and pumps and solar equipment. The contents of your office building also are covered by flood insurance. These include personal property such as clothing or furniture, curtains, and window air conditioners. Let’s continue to take a look at the ins and outs of commercial flood insurance.

What’s Not Covered by Commercial Flood Insurance

According to FEMA, the following items are not covered by commercial flood insurance. They include damage caused by moisture, mildew or mold that could have been avoided by the property owner and damage caused by sewer or drain backup unless there is a flood in the area that caused the backup.

Currency, precious metals, valuable papers and recorded data are not covered by commercial flood insurance. Property and belongings outside of a building or in another structure such as trees, plants, wells, septic systems, walkways, decks, patios, fences, seawalls, hot tubs, swimming pools and cars, including their parts, are not covered by commercial flood insurance.

What Defines a Flood?

The NFIP defines a flood to be an excess of water on land where it’s normally dry. To be considered a flood, the water must affect either at least two acres of land or two or more properties.

Should I Buy Commercial Flood Insurance?

Most commercial property insurance policies don’t cover flood insurance. So if you live in an area that is prone to flooding, you may want to buy a commercial flood insurance policy for your business.

But even businesses in areas that don’t seem as prone to flooding may want to consider commercial flood insurance. For example, if your business is in an area with snowy winters. Melting snow is one of the top causes of commercial flooding. And if your area gets moderate rainfall in the spring, this could cause a nearby spring to overflow and cause a flood.

And here is an interesting statistic to consider. More than 20 percent of flood claims come from properties outside high-risk flood zones. So you don’t need to be in a high-risk area to be affected by flood damage.

Keep in mind that storms aren’t the sole cause of flooding. A broken levee or dam could trigger a flood.

How Does Flood Insurance Work?

With flood insurance, there is a 30-day waiting period before your policy takes effect. If a flood should damage your business during those 30 days, you won’t be covered. That is why it is a good idea to purchase a commercial flood policy before a potential flood heads your way.

For businesses in low risk areas, NFIP offers a policy with coverage for both the building and the contents together and another policy that’s contents only. For businesses in high risk areas, the premiums are higher than for businesses in low risk areas. Separate deductibles apply to the building and its contents portions of the coverage. Payment of the premium is made annually in one lump sum.

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A commercial flood policy is a single-peril policy that only covers floods. A commercial flood policy pays for direct physical damage to your insured property up to the actual cash value. Actual cash value is the cost to replace an insured item of property at the time of loss, minus the value of its physical depreciation.

Your commercial flood policy comes with a deductible and choosing a higher deductible will lower the premium that you pay. You choose one deductible for building property coverage and one for personal property coverage. A lender may limit how high a deductible you may choose. So check with your insurance company about limits on deductibles. Your policy’s declaration page will list the amounts of coverage and the amounts of the deductibles that you have chosen for your policy. So check this page before reaching out to your insurance company about changes to your policy.

Increased Cost of Compliance Coverage

Most commercial flood insurance policies include increased cost of compliance coverage. This coverage may apply when flood damages are substantial. This coverage provides up to $30,000 of the cost to elevate, demolish or relocate an insured building or to floodproof structures with qualified basements, according to FEMA.

Will My Commercial Loan Require Flood Insurance?

If your business is in an area with a high-risk for flooding, a mortgage lender may require you to get flood insurance before you can get a commercial loan.

Coverage Limits for Commercial Flood Insurance

The maximum coverage for commercial flood insurance is $500,000 for building coverage and $500,000 for personal property coverages. With commercial flood insurance, coverages and rates are set by NFIP and do not vary from insurance company to insurance company. Flood insurance rates are determined by factors such as type of construction and age of your business property, number of floors and building occupancy and your area’s level of risk for flooding as determined by FEMA.

Causes of Flooding

Flooding is the most common natural disaster in the United States. Some floods are caused by tropical storms and hurricanes. But most occur because of thunderstorms, heavy rains, rapidly melting snow and breaches of levees and dams.

Federal Assistance

If a flood in your area is declared a federal disaster, there is federal assistance available. Federal assistance is often in the form of a loan, which will need to be repaid with interest.

Risk of Flooding

Wondering if your business is a high risk for flooding? Visit FEMA and check for a flood map of your area.

10 States Most at Risk for Flooding

A flood can happen anywhere but these 10 states are greater risks for flooding because of low lying areas. They are Georgia, Massachusetts, North Carolina, South Carolina, Virginia, New Jersey, New York, California, Louisiana and Florida.

If you own commercial business in any of these states you may wish to purchase commercial flood insurance even if your business is at a low or moderate risk area. That way, your business will be protected if a flood happens in your area.

Warning Signs for Flood

What are the warning signs of floods? They include intense rainfall, a dam or levee breaking, a slow moving tropical storm or hurricane, and an early snow melt. As mentioned earlier, there is a 30-day waiting period before a flood insurance policy begins. So don’t wait until there is bad weather in your area to think about purchasing a policy. Purchase a policy well in advance of the rough weather that comes to your area and protect your business with flood insurance. To buy flood insurance for your business enter your zip code below to get started.

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