Is Your Business Insured for Flood Loss?
With the official start of spring, melting snow and rains are already causing flooding across the country; businesses should consider flood insurance, according to the Insurance Information Institute (I.I.I.).
Standard business insurance policies provide coverage for disasters such as fire, lightning, hurricanes and winter-related damage including burst pipes, but flood damage is not included. Flood insurance is available through the federal government's National Flood Insurance Program (NFIP). To purchase flood insurance, your business must be located in a community that participates in the NFIP. Fortunately, most communities do participate and flood insurance is readily available.
"One of the biggest mistakes a business owner can make is not to buy flood insurance," said Loretta Worters, vice president, I.I.I. "Business owners should contact their insurance broker or company representative now to make sure they have the right type and amount of coverage."
Coverage limits for a standard flood policy are $500,000 for the business structure and $500,000 for the business contents; coverage for structure and contents is provided on an actual cash value basis (i.e., the replacement cost of an insured item at the time of loss, less the value of depreciation). Deductibles range from $500 to $1,000, depending on the policy you buy. Generally, if you buy a policy for a business located inside a floodplain (any area susceptible to being inundated by floodwaters), the deductible is $1,000, unless mitigation measures have been taken to protect the building.
In addition to structure and contents coverage, the NFIP business policy includes:
* Increased Cost of Compliance (ICC). If your business is damaged by a flood or if the building has been declared substantially or repetitively damaged, you may be required to meet certain building requirements in your community to reduce future flood damage when you repair or rebuild. To help you cover the costs of meeting those requirements, the NFIP includes ICC coverage for all new and renewed Standard Flood Insurance Policies. Coverage can be applied to elevation, relocation, demolition or flood proofing up to $30,000. ICC is not available to policyholders covered under Group, Condo or Emergency Program policies.
* Debris and Loss Avoidance provides coverage for debris removal and loss avoidance measures such as the cost of plywood and sandbags, up to $1,000.
When higher limits of flood insurance are needed, "layering" of coverage is the common approach. In addition to standard flood coverage, business owners can purchase an excess flood policy or a Difference in Condition (DIC) policy, both of which provide coverage limits over and above the NFIP's maximum limits. Excess flood policies insure only against the peril of flood and are often written to provide limits in excess of the maximum amounts available through the NFIP. DIC insurance provides coverage designed to close specific gaps in standard insurance policies and is usually available only for larger industrial or commercial risks. It allows coverage to be customized to extend to such exposures as water damage, flood, collapse, earthquake, landslide, etc., according to the insured's needs. DIC coverage may be provided by means of a separate insurance policy or it may be added by endorsement to the basic business owners policy. DIC policies often cost a little more than excess flood insurance due to their broader coverage. Coverage limits of $5 million and higher are often available.
How to Assess Your Flood Risk
More than 20,000 communities in all 50 U.S. states and territories voluntarily participate in the National Flood Insurance Program, encompassing nearly all properties in the nation's high-risk flood zones. For more information, visit the Your Flood Risk section of the NFIP's FloodSmart Web site; in the lower left hand corner is a One Step Flood Risk Profile tool where you can enter your address to determine your level of flood risk.
How to Purchase Flood Insurance
Federal flood insurance policies can be purchased directly from an insurance agent or a company representative. Nearly 100 insurance companies write and service NFIP policies. In order to find an agent or company servicing your area, visit the NFIP's FloodSmart.gov or call (888) 379-9531.
Business owners should keep in mind that there is a standard 30-day waiting period from the date of purchase before a new flood policy goes into effect. However, if you are taking out a mortgage or other business related loan and your lender requires flood insurance in connection with making, increasing, extending or renewing the loan, the waiting period is waived.