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Flood Insurance for Commercial Properties: What You Must Know
Floods are nearly universally excluded from commercial property insurance. If you're in an area at risk of flooding, you'll need to take a few steps to get protected.
As a commercial real estate investor, you're no stranger to risk management. However, flooding often gets overlooked. Flood damage can devastate commercial properties, causing extensive structural harm, ruining inventory and equipment, and halting business operations. Standard commercial property insurance policies typically don't cover flood damage, leaving a dangerous gap in your protection.
In this guide, I'll help you understand flood insurance for commercial properties so that you can make better, more informed decisions to protect your investments. And always remember if you're looking for more guided assistance, reach out to Janover Insurance Group to get a free quote that covers all your bases.
Flood Risk: More Than Just Location
Flooding affects all 50 states, not just coastal areas or riverside properties. About 20% of flood insurance claims come from areas considered low to moderate risk. Local topography, drainage systems, and recent development all impact an area's flood risk. Climate change is also altering flood patterns, making historical data less reliable.
FEMA designates flood zones based on risk level. Zones starting with A or V are high-risk areas. If your property is in one of these zones and has a mortgage from a federally regulated or insured lender, you must have flood insurance. However, being in a moderate to low-risk zone (B, C, or X) doesn't guarantee safety from flooding.
Regardless of your official flood zone, assess your actual risk. Consider hiring a professional to evaluate your property's specific vulnerabilities or consult with local flood management authorities. Flood maps can become outdated, and your property's risk can change over time due to factors like new construction or changing weather patterns.
NFIP and Private Insurance: Understand Your Options
For commercial properties, you have two main flood insurance options: the National Flood Insurance Program (NFIP) and private flood insurance. Each has strengths and limitations.
The NFIP, managed by FEMA, offers coverage up to $500,000 for building property and another $500,000 for personal property. It's available in all flood zones and may be required by lenders in high-risk areas. The NFIP provides stability, backed by the federal government. However, its coverage limits may not suffice for larger commercial properties, and it has a 30-day waiting period before coverage starts.
Private flood insurance often offers higher coverage limits and may provide more comprehensive coverage, including business interruption insurance. Private policies might have lower premiums, especially in lower-risk areas, and typically have shorter waiting periods. However, they may not be available everywhere, and their premiums and availability can change based on market conditions.
For many commercial properties, combining NFIP and private insurance might provide the most comprehensive protection. This approach allows you to secure base coverage through the NFIP and supplement it with a private policy to fill gaps or increase limits.
When choosing, consider your property's value, its contents, potential business interruption costs, and your risk tolerance. Ask potential insurers detailed questions about their coverage, claim process, and financial stability.
What Flood Insurance Covers (and What It Doesn't)
Flood insurance typically covers:
- Building structure and foundation
- Electrical and plumbing systems
- HVAC equipment
- Water heaters
- Large appliances
- Debris removal
- Mold or mildew damage that could have been prevented
- Currency or precious metals
- Property outside the building (landscaping, septic systems)
- Vehicles
- Business interruption expenses (especially in NFIP policies)
- Elevate critical systems above the base flood elevation
- Install flood openings in enclosed areas below base flood elevation
- Use flood-resistant materials in flood-prone areas
- Implement deployable flood barriers
- Maintain and improve drainage systems
- Check your flood zone using FEMA's Flood Map Service Center, but remember local conditions might affect your risk beyond what maps show.
- Evaluate your needs, considering your building's value, contents, and potential business interruption costs.
- Get quotes from both NFIP and private insurers. A combination might offer the best protection.
- Review policies closely, noting coverage limits, exclusions, waiting periods, and claim procedures. Consider an excess flood policy if primary policy limits aren't enough.
- Review your coverage annually. Flood risks and insurance options change over time, so ensure your protection evolves with your needs.
However, most policies won't cover:
"Flood" in insurance terms means excess water on normally dry land, affecting two or more acres or properties. Water damage from a burst pipe, for instance, falls under standard property insurance, not flood insurance.
Review potential policies carefully, paying attention to these coverage details and exclusions. Consider how they align with your property's specific risks and needs. If you have valuable outdoor features or if business interruption is a major concern, you might need additional coverage beyond a standard flood policy.
Protecting Your Property and Reducing Premiums
Taking steps to reduce flood risk can protect your property and potentially lower insurance premiums. Consider these strategies:
These measures require upfront investment but can lead to substantial savings on premiums and reduce potential flood damage. They show insurers you're actively managing risk, which can result in more favorable policy terms.
Consult a flood mitigation specialist or your insurance broker to understand which measures would work best for your property and how they might affect your insurance premiums.
Securing Your Flood Insurance
To obtain flood insurance for your commercial property:
Final Thoughts
Flood insurance is a key part of risk management for commercial real estate investors. While it adds to your costs, the potential impact of flood damage far outweighs the price of coverage. Understanding your options, implementing protective strategies, and working with experienced professionals will help safeguard your investments against flood risk.
At Janover Insurance Group, we help commercial real estate investors tackle these complex decisions. We can assess your flood risk, compare policy options, and find comprehensive, cost-effective coverage for your situation.