Do You Need Commercial Flood Insurance?

Flooding is one of the most common causes of water damage to homes and businesses leading to insurance claims. A flood doesn’t occur just from hurricanes or tropical storms—it can also be caused in areas with significant thunderstorms and melting snow. Some states also see heavy rainy seasons, which can lead to flooding, even in low-risk zones. What else can cause flooding?

• Ice jamming is caused when a stream or river becomes clogged with ice, causing a backup and eventual overflow
• Flash floods happen during and after heavy rain
• Mudslides affect hills and mountainsides after heavy or prolonged rain
• Storm surge—particularly in areas that experience hurricanes—are responsible for all sorts of flood damage
• Construction or lack of proper infrastructure may cause land or streets to have trouble draining
• Blocked storm drainage systems.

Does Your Business Need Flood Insurance?

More than 80% of all natural disasters declared by the federal government involve water damage from a flood. The average commercial flood claim in the past decade has been approximately $33,000, and at least a quarter of all businesses that have experienced flood damage close—and never reopen.

Is your business in a flood zone? Your mortgage lender may require that you get flood insurance to secure the loan. If you are in an area that gets heavy snowfall in the winter, it puts you at risk for a flood in the spring. Flooding is a natural disaster that is an exclusion in commercial property insurance (sometimes called business property insurance), so if you’re in a moderate to high-risk area consider this important coverage. 

FEMA provides maps of flood zones to help determine whether or not you need insurance coverage.

What Does Business Flood Insurance Cover?

The National Flood Insurance Program (NFIP) identifies a flood as excess water on land that is normally dry. Typically, further stipulations apply: It must cover at least 2 acres of land and impact two or more properties to be considered flooding. An NFIP insurance policy includes building coverage and contents coverage. If your business experiences water damage from a flood, your flood insurance covers the repair or replacement of:

• Plumbing and electrical
• Water heaters and furnaces
• Central air conditioning
• Appliances
• Carpet, hardwood, and other flooring
• Cabinets 
• Windows
• Foundation, walls, stairs, etc.
• Detached garages
• Solar panels/equipment

It should also cover personal property such as furniture, computers, clothing, and equipment and inventory. If mold or mildew damage occurs as an aftereffect from flooding it is usually coverage, as long as the small business owner proves they did everything possible to mitigate the problem.

Both the homeowner and commercial flood insurance policies through NFIP only offer actual cash value replacement. What does that mean? If something is damaged beyond repair, they will replace it at the cost of the item—minus depreciation. 

Flood Insurance also Covers Prevention + Cleanup

The NFIP will reimburse up to $1,000 of the cost of flood prevention (such as sandbagging before a hurricane) and up to $1,000 of the cost to move expensive business property that could get damaged. A flood insurance policy also covers the cost of debris removal after flood damage occurs. 

Increased Cost of Compliance (ICC)

What Is Increased Cost of Compliance Coverage? Most NFIP policies include ICC coverage. It provides up to $30,000 to upgrade your building to current floodplain management standards. What does that mean? They may help cover the cost to alter the foundation or structure, elevate the building, demolish it, relocate it, or add a flood-proof basement, 

What is NOT covered by flood insurance?

Commercial flood insurance excludes damage from a sump pump backup. It also doesn’t reimburse a business owner for business interruption. Valuable papers, vehicles, landscaping, and septic systems are also excluded from flooding insurance. 

How Much Does Commercial Flood Insurance Cost?

What can small business owners expect to pay for flood insurance? The National Flood Insurance Program—which is run by the Federal Emergency Management Agency (FEMA)—regulates coverage and rates in the United States for flood insurance policies. Flood insurance plans typically only cover up to $500,000 in property damage. If replacing your building will cost more than $500,000, you can purchase excess flood insurance coverage—such as an umbrella policy. 

That being said, the cost of flood insurance coverage for business owners will depend on a few factors:

• If you’re in a low, medium, or high-risk flood zone
• The age and height of your building
• The number of floors in the building
• The occupancy of the business
• If you own a business located on a higher floor of a building, premiums may be lower.
• The higher your deductible, the lower the cost of your premium
• The coverage limits you choose for flood coverage

If your business is in a low-risk flood zone, you may be eligible for a Preferred Risk Policy (PRP) that can cost as little as a few hundred dollars a year. Normal coverage can vary from $650 to around $10,000 annually. 

NOTE: There is a 30-day waiting period from the day you buy your policy and the day it goes into effect. If a flood damages your business during that waiting period, you will not have coverage for your claim. So the time to talk to your licensed insurance professional is sooner, rather than later.

Get a Free Commercial Flood Insurance Quote

While flooding insurance policies are sold through and regulated by the NFIP, you must still purchase them through a licensed insurance agent. If you’re interested in getting this coverage for your small business or would like more information, give us a call at 877-907-5267 or complete the form at the top of the page for more information.

Other Business Insurance to Consider: Commercial Property Insurance, Business Interruption Insurance, Carpet Cleaning Insurance