With current extreme weather conditions in many areas of the United States, I understandably have received many phone calls and inquiries recently about flood insurance. Most callers wonder if they currently have flood insurance included on their property policy. Unfortunately, all too often, they don’t. With this in mind, let’s review what you should know about flood insurance, how it works and how to buy it.
Standard homeowner, renter and business policies typically do not cover flood damage. However, they likely will cover damage from some types of water, such as broken pipes and seepage, but true floods are a completely different scenario. This can be problematic if you either want flood insurance to protect your property due to its proximity to a water source, or if you must have it to be in compliance with mortgage requirements in a high-risk flood zone.
Here, we’ll concentrate on flood insurance for businesses, but you can find more about homeowners’ flood insurance from your personal insurance agent.
When looking to purchase flood insurance, there are a few things to consider:
- Am I in a flood zone? If you’re in a flood zone or are unsure, look at a flood map — visit msc.fema.gov and simply find your location. If you’re in a flood zone, your best option may be through the National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA). For building coverage, NFIP policies can cover buildings, foundations, electrical, plumbing, HVAC systems and walk-in freezers. For contents coverage, NFIP policies can cover furniture, fixtures, machinery, equipment, stock and up to 10% for improvements. The policy does not offer coverage for loss of use or business interruption. Premiums charged for these policies will depend on the zone in which your property is located, chosen deductible, your building’s type of construction, etc. NFIP has specific limits for which coverage can be purchased depending on the type of building (residential or commercial) and where it’s located. If you need higher limits, you may be able to purchase excess flood insurance through the open insurance market for the limits needed to cover your assets. Note, coverage within NFIP covers your property at “actual cash value,” which is the value of your property new minus the depreciation. NFIP policies can usually be purchased through your insurance agent. You cannot purchase flood insurance through NFIP directly.
- Am I in danger of flood waters from other sources, such as snow melt, an overflowing creek or pond or perhaps just water run-off from a steep hill? If you are not in a flood zone, but wish to purchase flood insurance, you can do so through your agent by accessing the open insurance market. Although your current business policy likely doesn’t automatically include flood as a covered peril, it can be purchased separately. Many insurance companies have the ability to add flood as a covered peril to your current policy for an additional premium, at either the full limits carried on your property policy, or at a sub-limit that applies specifically to flood. If your insurance company doesn’t offer this option, your agent should be able to access an insurance company that offers a flood-only policy. Both options would enable you to choose the limits and deductibles, depending on the coverage premium you want
to pay.
An important exception to the “flood isn’t automatically included” rule is if you have a Garage policy. If you’re a truck dealer, you may have a Garage policy that lists your Dealers Inventory held for sale. If you’re an upfitter, you also likely have a Garage policy that lists Garage Keepers (coverage for customers’ units while in your care). Both of these coverages, Dealers Inventory and Garage Keepers, nearly always automatically afford coverage for flood. Therefore, in the event of a flood, you may not have coverage for your building or contents right now, but you could have coverage for your inventory and customers’ vehicles. It’s important to check with your agent to see how your individual policy is written.