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Beginners Guide to Commercial Flood Insurance

Commercial flood insurance provides your business with the resources to recover after a flood event. In this article, we explain everything you need to know about commercial flood insurance and why obtaining a policy is the best choice you can make in protecting your business from common and costly natural disasters.

What is Commercial Flood Insurance?

As a business owner, you have business or property insurance that covers your tools, equipment, or building in case of a fire or other unforeseen disaster. While a general business policy covers loss or damage, it will not cover loss resulting from a flood. To protect your business from flood damage, you need commercial flood insurance.

You can purchase a commercial flood insurance policy from the National Flood Insurance Program through your insurance agent. The NFIP offers two types of commercial flood insurance: building coverage and contents coverage. The separate policies work in tandem to provide you with coverage for your building and everything inside should you experience a flood.

Reasons to Consider Flood Insurance

Flooding is the most common –– and most costly –– natural disaster in the U.S. Forbes predicts that 2022 will see $49 billion in flood damages to businesses alone. With a predictable increase in the number and severity of flood events, business owners can expect that flood zones will also continue to expand.

Today, business insurance policies don’t cover damage resulting from floods or flood events. That means even if a business owner has purchased an insurance policy to protect their assets, they won’t have any resources should flooding cause damage to their building or the contents within. Without flood insurance, a flood can take everything you have, and you’re left to pick up the pieces with no funding from your general insurance policy.

That’s why all businesses should consider purchasing flood insurance. Flooding isn’t limited to coastal regions or river basins, and a deluge can destroy your business in a matter of hours. If you’ve invested your time, energy, money, and emotions into your business, commercial flood insurance is non-negotiable.

What Does Commercial Flood Insurance Cover?

Flood insurance covers flood damage to your building and the contents inside. When determining insurance coverage, the cause of flooding matters. To make a claim, the flood must affect two or more acres of land that are normally dry or two or more properties. Typically, if flooding results from rainfall or snowmelt, you will be covered.

As we noted above, the NFIP provides two types of commercial flood insurance.

Building coverage protects the following structural components:

  • Electrical and plumbing systems
  • Furnaces and water heaters
  • Permanently installed carpeting
  • Permanently installed cabinets, paneling, and shelving
  • Foundation walls
  • Staircases
  • Fuel tanks
  • Water wells and pumps
  • Solar energy equipment

The following assets are covered under a contents coverage plan:

  • Personal belongings, like clothing and furniture
  • Curtains
  • Washer and dryer
  • Portable and window air conditioners
  • Carpets not included in-building coverage

Your specific coverage will vary, so talk with your agent to gain a firm understanding of the assets covered under your policy.

What is Not Covered by Flood Insurance?

Flood insurance won’t typically cover items outside your building. Landscaping, septic systems, signage, or other items on the exterior of your building aren’t covered by a commercial flood insurance policy.

Your business vehicles are not covered by commercial flood insurance. However, you can opt for flood insurance in your auto insurance policy. Additionally, flood insurance won’t cover financial loss caused by time lost or the inability to utilize insured damaged items.

Mold is a serious problem for business owners whose buildings have been struck by a flood. Mold spores will grow on a damp surface within 24 to 48 hours after a flood. To effectively stop mold damage to your business and your assets, you must mitigate growth as soon as possible.

Damage from mold or mildew resulting from a flood is covered by your policy, but each case is individually evaluated. Mold that existed prior to the flood event will not be covered. And it’s the policy holder’s responsibility to respond to and mitigate mold growth quickly and reasonably. If you don’t, certain aspects of mold and mildew damage might not be covered.

Do I Need Commercial Flood Insurance?

If your business property is in a high-risk flood area and your mortgage is from a federally regulated or insured lender, you’re required to purchase commercial flood insurance.

However, we highly recommend purchasing flood insurance even if you don’t fall into that category. Flooding can happen anytime and anywhere, not only in high-risk flood zones. And because a traditional building or property insurance policy won’t cover flood damage, if you do find yourself in the middle of a flood, you will be out thousands of dollars in repairs –– if not more.

Commercial flood insurance is a low-cost investment that can save you both financial and emotional stress should flooding occur in your area. 

Do Commercial Loans Require Flood Insurance?

If your business is in a high-risk flood zone, your mortgage lender will require you to purchase commercial flood insurance before they approve your loan. Until your mortgage has been fully paid, the mortgage company still owns part of your assets. As such, they can –– and will ­­–– impose extra precautions to protect the property.

Prepare to pay for commercial flood insurance if you’re obtaining a commercial loan and your building is in a flood-prone area. 

What Is the Maximum Coverage for Flood Insurance?

Through the NFIP, businesses can receive coverage of up to $500,000 for a building and $500,000 for the contents. There’s typically a 30-day waiting period from the day you purchase until your commercial flood policy goes into effect.

If you need more coverage than what’s allowed in a standard policy, you can purchase excess insurance coverage to rebuild properties valued above $500,000. This additional coverage offers protection against business interruption caused by flooding.

 The Bottom Line

You hope that you’ll never need flood insurance, but if you do, it’s an invaluable resource to help you rebuild your business. Contact your insurance agent to learn how you can obtain your commercial flood insurance policy today.

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