Understanding Commercial Flood Insurance
Flood insurance is a coverage that is often overlooked by many businesses that are not located within a Special Hazard Flood Area (SHFA), aka the 100 year flood plain. Contrary to popular belief, flood insurance can be purchased by just about anyone in the United States whether you are in a SHFA or not.
The federal government’s National Flood Insurance Program (NFIP) is the primary writer of flood insurance in the country; however they offer only limited property limits and limited coverage options. For a business, the NFIP will offer up to $500,000 of coverage on the building and $500,000 of coverage on the contents in the building, with deductible options up to $50,000. However, unlike most property policies that will offer Replacement Cost coverage (no deduction for depreciation), the NFIP’s loss settlement structure is Actual Cash Value only, meaning they willdeduct for depreciation on both the building and the contents. Also, the deductible applies separately to the building and contents (two deductibles). Finally, the NFIP does NOT offer Business Interruption coverage. So if your business is shut down for any period of time after a flood loss, there will be no compensation for your lost business income.
Fortunately, there are a few non-NFIP insurance markets that have recently begun writing flood insurance in competition with the NFIP, and some will offer Business Interruption coverage. But non-NFIP markets don’t accept every risk like the NFIP does so they won’t write everyone. Another possible way to get Business Interruption coverage is to purchase excess flood coverage above the NFIP policy. This would give you additional flood property limits above the NFIP’s $500,000 and then you may be able to add Business Interruption coverage to the excess policy. You would have to decide if the additional cost is worth the coverage, but most people who have suffered an uncovered loss usually wish they had paid the extra money after the fact.