With forecasters predicting significant rainfall thanks to the El Nino weather phenomenon, you could be putting your business at risk if you are not properly insured.
The average commercial flood claim is $89,000, according to the National Flood Insurance Program. And 25% of businesses that shut down after events such as floods never reopen.
You might be thinking that you might qualify for federal disaster assistance. But most federal aid comes as a loan – not an outright grant. A $50,000 loan at 4% interest would result in an annual payback of $2,880 – over 30 years.
Damage from flooding, including flooding generated by hurricane-generated storm surge, typically is not covered under a standard commercial policy, including a commercial package policy or a business owner’s policy.
A business located in flood plains will usually carry some flood insurance, but 30% of all floods in the U.S. occur outside flood plains. With record amounts of rainfall predicted, even businesses and homes located outside of flood plains may be at risk.
When you’re evaluating whether you need flood insurance, you should ask yourself questions about your expectations and your needs. In many aspects, flood insurance differs greatly from other coverage for your business. Here are the major issues, according to the Insurance Information Institute.
What does flood insurance cover?
Flood insurance covers damage to your building and contents caused by flooding.
This includes losses resulting from water overflowing rivers or streams, heavy or prolonged rain, storm surge, snow melt, blocked storm drainage systems, broken dams or levees, and other similar causes.
Also, damage from mold and mildew resulting from the after-effects of a flood is covered, but each case is evaluated on an individual basis.
Mold and mildew conditions that existed prior to a flooding event are not covered, and after a flood, the policyholder is responsible for taking reasonable and appropriate mitigation actions to eliminate mold and mildew.
Generally, if water comes from above – for instance, from rain or melting snow overflowing gutters and leaking onto your inventory – you’ll be covered by your standard commercial property insurance.
What’s my risk for flooding?
This is a key question, of course. By far the best indicator for the risk you face is location: Is your business near the coast or a river, lake or stream?
What’s the weather like? Is there a threat of hurricane, tornado or severe storm?
Is the business – and its primary equipment and inventory – on the bottom floor of the building or higher up, where it would be safer?
Coverage limits
Commercial flood insurance typically provides up to $500,000 of coverage for your building, and up to $500,000 for its contents.
You can purchase what’s called excess insurance coverage to rebuild properties valued above those limits, and this type of coverage usually includes protection against business interruption.
Think ahead
Don’t wait too long. Most flood policies won’t take effect until 30 days after the purchase, so you can’t wait until a threat surfaces to make a decision to buy.