Know your coverage and risk.
A general policy will generally not cover claims for flood damage, and this type of insurance is often only available through the National Flood Insurance Program (NFIP).
If your commercial property is in a high-risk flood area and you have a mortgage from a federally regulated or insured lender, then you are required to purchase a flood insurance policy. However, the NFIP reports that one-third of all annual claims paid are for policies in low-risk communities. Because new land development can increase flood risk by changing natural runoff patterns, it is a good idea to purchase flood insurance even if you are not near a large body of water.
Who should buy NFIP coverage?
There are two main flood hazard level standards and several sub-categories that the NFIP uses to categorize a company’s risk for flooding and to determine premiums.
- Moderate-to-low-risk buildings, which are in zones B, C and X. These areas are outside of the one percent annual chance floodplain, areas of less than one percent annual chance of sheet-flow flooding where average depths are less than one foot, areas of less than one percent annual chance stream flooding where the contributing drainage area is less than one square mile or areas protected by levees.
- High-risk buildings, which are in zones A and V.
- Zone A buildings are within a certain floodplain distance from a river, lake or stream.
- Zone V buildings are within a certain distance from the coast and exposed to natural disasters associated with the ocean.
What are the associated costs?
Flood insurance premiums are based on several factors, which could raise or lower the amount your company would have to pay. These factors include the following:
- Building’s age, height, and occupancy
- Your company’s location within the building
- The location of the lowest floor in relation to the elevation requirement on the flood map (only applicable to newer buildings)
- The deductible you choose and the amount of building and contents coverage
If you are located in a low-risk area, you are eligible for the Preferred Risk Policy, which would cover your building as well as its contents for just a few hundred dollars a year. Even though federal disaster assistance is available to flood victims, it is usually in the form of a loan that must be paid back with interest.
What Does Flood Insurance Cover?
Standard property insurance does not cover damages from flooding. A separate flood policy is needed to cover losses to your property caused by flooding, which provides coverage for things such as:
- Structural damage
- Furnace, water heater and air conditioner
- Flood debris clean up
- Floor surfaces (carpeting and tile)
According to FEMA (Federal Emergency Management Agency), flooding is the nation’s most common natural disaster. 30% of flood claims are filed by people living in moderate- to low-risk areas.
There are two types of commercial building flood insurance coverage, and you can opt to buy one or both.
- Commercial Contents covers inventory, merchandise, machinery and any other contents your business has up to a certain amount.
- Commercial Building covers your company’s building and contents up to a certain amount each. If your company does not own the building, NFIP will cover a percentage of improvements you made to the space.
- In addition to these two types of building coverage, the NFIP will also cover debris removal during the cleanup process. Also, if your business takes steps to protect against or prevent flood damage, you may be eligible for lower rates. For more information on how to protect against the risk of flood damage to your business, go to www.fema.gov/information-property-owners.
In general, a policy does not take effect until 30 days after you purchase flood insurance.
- National Flood Insurance Program - www.floodsmart.gov
- Federal Emergency Management Agency - www.fema.gov
- FEMA's Flood Insurance Information - www.fema.gov/national-flood-insurance-program