Flooding ranks among the most frequent and expensive natural disasters in the United States. For businesses, the aftermath of a flood can be devastating, with damaged equipment, destroyed inventory, and lengthy downtime that impacts revenue. However, numerous business owners do not realize that typical commercial insurance policies exclude coverage for flood damage. So, do you need flood insurance for your business? Let’s break it down.
Flood Damage Is Not Covered by Standard Business Insurance
Most commercial property insurance policies, including Commercial Package Policies (CPP) and Business Owners Policies (BOP), do not include coverage for flooding. That means if your business experiences damage from rising water, storm surge, or overwhelmed drainage systems, you could be left paying for repairs and replacements out of pocket. To be protected from flood-related losses, you must purchase a separate flood insurance policy.
What Commercial Flood Insurance Covers
A flood insurance policy typically covers physical damage to your business property and contents caused directly by flooding. Covered events include:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters
- Collapse or failure of land along a body of water due to erosion
- Heavy rain or snowmelt causing water to enter the building
- Storm surges and levee or dam failures
For an event to qualify as a flood, it generally must affect two or more properties or cover at least two acres of land.
What’s Not Covered
Flood insurance policies do come with exclusions. Items and areas typically not covered include:
- Landscaping, outdoor signage, fences, and septic systems
- Business vehicles (these may be covered under a separate commercial auto policy with comprehensive coverage)
- Financial losses from business interruption or temporary closures
- Mold or mildew damage that results from poor maintenance or pre-existing conditions
Is Flood Insurance Required?
If your business property is situated in a flood zone with a high risk, and you possess a loan from a lender that is federally regulated or insured, obtaining flood insurance is required. Even if it’s not required, businesses located in moderate-to-low-risk areas may still face flooding risks and could benefit from the added protection.
Determining Your Flood Risk
The most important factor in deciding whether you need flood insurance is your location. Flood maps, available through FEMA and local planning agencies, designate flood zones. If your building sits in a low-lying area, near a river or stream, or in a region with heavy seasonal rainfall, your risk is elevated. Additionally, consider the layout of your building. Inventory or equipment stored on the ground floor or in a basement is at higher risk of flood damage.
Where to Get Flood Insurance
Flood insurance for businesses is available through the National Flood Insurance Program (NFIP) as well as select private insurance providers. NFIP policies must be purchased through an authorized insurance agent—they are not sold directly by the federal government. The NFIP offers coverage limits of up to $500,000 for the structure and up to $500,000 for the belongings. If your business assets exceed these limits, you can purchase additional excess flood insurance through private insurers.
How Long Before Coverage Begins?
It’s crucial to note that flood insurance generally has a waiting period of 30 days before it takes effect. This means you can’t buy a policy at the last minute when a storm is approaching. Planning is critical to ensure your business is protected when it matters most.
Mold and Mildew After a Flood
Flood insurance may cover mold and mildew damage resulting from a covered flooding event—but only if you take appropriate action after the event to prevent further damage. If mold existed before the flood or if you fail to take steps to clean and dry the property, the damage may not be covered by the insurance policy.
Do You Need Flood Insurance?
If your business is in a flood-prone area, stores equipment or inventory on lower levels, or operates in a region with unpredictable weather patterns, flood insurance is a smart investment. Even a few inches of water can cause tens of thousands of dollars in damage—and without coverage, those costs fall directly on you.
Protect your business from the unexpected. Flood insurance offers reassurance and financial stability, allowing you to bounce back faster and keep serving your clients after a disaster occurs.
