According to the National Flood Insurance Program (NFIP), almost 40% of small businesses never reopen following a disaster. Even if flooding isn’t likely, a few inches of water could cost your business tens of thousands of dollars in damage and close your doors long enough to lose customers.
Typical property insurance doesn’t cover damage caused by flooding, leaving small businesses to buy flood insurance separately through private insurers. The vast majority of these policies are arranged between insurers and the NFIP, a federally subsidized program.
Yet many business owners aren’t aware of the potential risks they may face. A quarter of losses each year are in moderate- or low-risk areas, says Louisiana Insurance Commissioner Jim Donelon, who urges businesses to consider buying flood insurance regardless of their location.
In some high-risk areas, if you have a federally backed mortgage, your lender will automatically require you to have flood insurance. The federal policies are extremely straightforward, and most small businesses should make the decision by assessing their individual needs.
Additional insurance may not be realistic for every mom-and-pop. The cost varies depending on the building type (such as whether or not it has a basement), your elevation level and how much coverage you want.
Standard Coverage Options
There are three standard coverage options for commercial properties:
- Building only, which covers the building and foundation, electrical systems and HVAC system.
- Contents only, which covers furniture, electronic equipment and other belongings.
- Building and contents.
If you lease property, you should still buy insurance that includes protection against flood damage to furniture and equipment.
For commercial risks, the maximum NFIP will cover is $500,000 on the building and $500,000 on the contents, but the cost of coverage varies. A moderate-to-low-risk policy could cost you anywhere from $183 a year for contents only, to over $1,000 for building and contents.
Far from hurricane territory, Nashville’s Grand Ole Opry House was shut down for five months in 2010 due to flooding. Could your business withstand the same? One hole in the NFIP flood coverage is that it doesn’t include financial losses caused by business interruption or loss of use of insured property.
For businesses seeking extra coverage, some private insurers offer additional protection known as “excess coverage,” which you would purchase in addition to your NFIP coverage. Though this might mean getting two separate policies, you could still go through one agent. Private coverage is also available to businesses in communities that prohibit the purchase of federal flood insurance.
Visit Floodsmart.gov to assess your risk, and talk to an agent for more on your specific coverage needs.