In the United States flooding may happen just about anywhere, and it is important to know which options are available to you to protect your business property in the event of such an emergency. A recent study determined that approximately 41 million American residents living along the coastline may be at a high risk of flooding, and these residents will not be protected by federal flood insurance options alone.
We have two choices when it comes to Flood insurance coverage in our country. Private flood insurance provided by a variety of insurance companies and the National Flood Insurance Program (NFIP) underwritten by the US government, through the Federal Emergency Management Agency (FEMA).
Getting flood coverage is typically recommended and is mandatory for homeowners who carry a mortgage and live in areas identified as Special Flood Hazard Areas (SFHAs) by FEMA. It is believed that there is a 1-in-4 chance that flooding will develop in some form in these areas of the country on a typical 30-year mortgage. For individuals living in low-risk to moderate risk locations, flood insurance may not be mandatory, but it can play a part in the protection of properties if there were extreme weather patterns and extensive damages. Therefore, it is advisable for most everyone who owns a home to obtain a flood insurance policy depending on their location, needs and requirements.
Your commercial lender may also want you to have flood insurance coverage in order to protect your investment and their collateral. Mortgage companies accept both, NFIP and Private flood insurance as long as they satisfy certain requirements.
What Is the National Flood Insurance Program (NFIP)?
The most popular flood insurance vendor in the United States is the National Flood Insurance Program (NFIP). The NFIP is controlled and administered by the government under the Federal Emergency Management Agency (FEMA). But, the program partners with many of the nation's leading insurance companies, so you can obtain a NFIP policy through many different insurance agents. Under this program, while the government will supply the funds to pay the claims, the agents will handle application for coverage and customer service.
Almost everyone can get an NFIP policy. This is ideal for people often difficult to insure, but the NFIP standardized coverage imposes strict maximums that top out at $250,000 for residential homes and $500,000 for commercial buildings may not meet everyone’s needs. Likewise, government flood insurance coverage has strict content limits. A homeowner is generally only allowed $100,000 limit of personal property coverage while a business can obtain a max of $500,000.
The NFIP doesn't offer protection for other types of personal property damage or loss apart from your home itself. This means it does not cover fences, pools, or sheds, even if they’re in your dwelling. For businesses, NFIP does not provide business interruption coverage for lost income resulting from a business shutdown due to flood damage to the structure.
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What Is Commercial Private Flood Insurance?
Commercial flood insurance coverage helps protect your business from flood damage. This type of insurance can protect your building's physical structure and its contents. You'll need to acquire it as a separate policy because flood coverage is usually not included in a commercial package or property insurance policy.
Due to the high cost of damages caused by floods and hurricanes, private flood insurance was hard to obtain in the past. However, as technology has improved, private flood insurance has become more cost-effective while encompassing a broader range of coverage than that of the National Flood Insurance Program.
Private insurance companies can offer you valued plans that have alternative coverage and may include all aspects of your business though they aren’t backed by the government. Private flood insurance companies may cover more of your business by providing you with broader coverage and higher limits. Private flood markets can include loss of rental value reimbursement if a property becomes uninhabitable by tenants due to flood damage. The broader coverage and limits available typically means you will pay a higher premium when you purchase a private flood policy for your business.
For a more thorough comparison, here are some advantages and disadvantages of the National Flood Insurance Program versus Private flood insurance.
Advantages of the National Flood Insurance Program (NFIP)
Everyone is eligible for an NFIP policy, since the government run program is a not for profit organization. Consequently, no one seeking an NFIP policy will be turned away because their property is deemed too risky.
Government-sponsored payouts provide security against serious flood aftermaths. It is possible that a private insurance company could simply not have enough money to cover claims during the course of a large, devastating flood, in which a large number of policyholders would have claim demands. This could result in causing the private insurer to go into receivership because of their inability to pay claims. The NFIP is incapable of closing down (unless government shuts down completely), because it is supported by taxpayer dollars.
Disadvantages of the National Flood Insurance Program (NFIP)
With NFIP, there are maximum limits available for some coverage. The NFIP program offers many limitations in regard to its building coverage and business personal property limits for business owners. The $500,000 building and $500,000 business property coverage limit is a major drawback of the NFIP for businesses. Furthermore, NFIP flood insurance policies will only reimburse for the actual cash value of your business personal property, not their replacement cost value.
There is always a 30-day waiting period for these policies to become active, unless you have a bank closing for a loan, in this case waiting periods can be waived. So, if you're planning to buy flood insurance a few days after you hear a very large storm is approaching, you are out of luck. Most private insurers will impose shorter waiting period for new policies.
Unless your loan closing papers includes a flood insurance requirement, NFIP coverage is not available until 30 day waiting period has passed. For example, consider a business structure you are about to close on, if your mortgage company required flood coverage, NFIP (and private flood) would waive the waiting period. If not required by loan documents, when a hurricane is on its way, you would be stuck waiting 30 days for the coverage to kick in.
Unless your loan closing papers includes a flood insurance requirement, NFIP coverage is not available until 30 day waiting period has passed. For example, consider a business structure you are about to close on, if your mortgage company required flood coverage, NFIP (and private flood) would waive the waiting period. If not required by loan documents, when a hurricane is on its way, you would be stuck waiting 30 days for the coverage to kick in.
Private flood insurers may be able to assess your flood risk better by assessing your property for a particular geographical area instead of relying on a map that may be outdated. You may also choose whether you will need to purchase an elevation certificate when applying for a NFIP flood insurance policy from a private business.
Advantages of Private Flood Insurance
These policies can offer more extensive coverage than those of the NFIP, allowing private insurance companies to approve policies with much higher coverage limits. For example, if you own a one-million-dollar home, you would only receive up to $250,000 from your NFIP policy. Private insurers can provide more specialized coverage and pay out replacement costs in case your property or its contents suffer any damage due to flooding.
Private insurance companies provide simpler and more intuitive quote processes. Many private flood insurers can provide you with an online quote, and you can adjust your buildings and contents coverage as you go and see how it will affect your policy in-the-moment. These companies may provide a more beneficial user experience and interface through the layout of their website than the NFIP security systems portal. Essentially, it may be simpler and quicker to get a flood insurance policy quote via the internet than in-the-office.
Disadvantages of Private Flood Insurance
Private insurance companies only provide coverage for certain risks and they may not cover everyone who applies since they can't run their business at a loss, which is unlike the National flood insurance program that covers just about everyone who applies. Right now, the number of risks the private insurance firms extend coverage to be increasing, but the NFIP always has accepted everyone.
A private flood insurance firm might cease offering coverage in your area or may also decide to remove your geographical area or determine your business or your region, in particular, is too hazardous to continue to write flood insurance. If that happens, they could choose not to renew your policy at term's end.
Private flood insurance program is somewhat untested and a newer product. It‘s unlikely, that a private insurer will not have enough money to pay for a claim after a serious flood, after all insurance companies buy reinsurance to step in on large loss occurrences. With NFIP as a backstop, there’s always some kind of payment cover, though depending on the value of your building and contents you may be much underinsured. Furthermore, if you drop FEMA insurance for private coverage, and then want to return to the NFIP, your premium may be even higher when you re-enter NIFP due to the updated rates they are making to try to match premium with risk.
Depending on the above advantages and disadvantages, which flood insurance should I get?
We hope this article on Private Flood Insurance vs National Flood Insurance Program Coverage (FEMA) was informative. There are both benefits and drawbacks to both types of flood insurance.
Whether or not you want to obtain private flood insurance or an NFIP plan is decided by cost and insurance coverage limits. Similarly, the value, total coverage, and worth of your possessions are the most significant factors when deciding which way to go, a private flood insurance policy or an NFIP program. If your business structure is valued at over $500,000, or you have more than $500,000 worth of business contents, you'll likely prefer a private flood insurance policy because these policies can provide the limits you seek.
If you decide to get private flood insurance, a vital thing to keep in mind is comparing rates as with any other type of insurance. The only way to know you are getting the best deal is when you compare the prices and coverage given by various private flood insurance carriers.
Contact an InsuranceAdvisor.com agent to get flood insurance if you are interested in getting a flood quote on your business. The agent may be able to provide you with guidance on selecting the ideal flood insurance coverage for your business.