You might be surprised to find out that most commercial property insurers do not cover flood damage under their standard policies. However, this doesn’t mean your business won’t need coverage in the event of a flood.
Many of us probably think of catastrophic conditions when we hear the word ‘flood,’ but in reality, floods occur regularly in most parts of the United States. According to the Federal Emergency Management Agency (FEMA), a flood is “a general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area.” So, one thunderstorm could lead to a flood, by this definition.
Why is Flood Coverage a Separate Policy?
Floods are unpredictable, extremely common, and can cause extensive damage. Flood zones in the U.S. are constantly being updated due to varying environmental factors. If private insurance companies had to keep track of changing flood zones and include potential losses in commercial plans, premium costs would be astronomical.
Instead, FEMA has created a separate insurer under the U.S. Department of Homeland Security called the National Flood Insurance Program (NFIP). The NFIP takes on the considerable task of tracking flood zones and responding to damage all over the country.
Should My Business be Covered?
It can be difficult to determine the risk of flood damage because, again, floods are unpredictable. They can happen almost anywhere in the country at any time, and damages can be in the tens of thousands to repair.
But, as a rule of thumb, if your commercial property is located in a high-risk flood area or housed on a lower-level floor, it would be in your best interest to look into flood insurance. Keep in mind, though, flood zones constantly change and don’t necessarily indicate the true risk of floods in your area at any given time.
After weighing the pros and cons of getting additional coverage, you might determine a need for flood insurance.
You won’t be able to purchase coverage directly through the NFIP. You’ll need to work with an insurance professional who is familiar with the process.
The NFIP will cover up to $500,000 for your commercial building and up to $500,000 for its contents. This covers any damages resulting from a flood which affects at least two acres or two properties. Flooding can occur from overflowing waterways, like streams or rivers, heavy storms, blocked drainage systems, or broken dams. Mold caused by a flood is also covered by the NFIP on a case-by-case basis.
If you feel that the standard policy isn’t enough for your business, you can apply for and purchase excess insurance coverage. This additional coverage even protects you against business interruption because of a flood. Most businesses should be more than covered under the standard policy, but you should consider excess coverage if your business is located in a flood zone.