Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 8 minutes
Flood damage can be detrimental in any situation, but it’s especially hard when small businesses get hit. Flooding is more than just a mess; it can lead to damaged electrical equipment, rotting baseboards, soaked materials, mold or mildew growth, and more. Worst of all, flooding can occur within minutes. It can lead to months’ worth of repairs and tens of thousands of dollars in damages or more.
What often stuns small business owners is that their standard business insurance policies won’t cover a dime. While knowing this can be unsettling, there are specific types of coverage that can cover flood damage.
Whether your business is rooted in a flood-prone area or you simply want more comprehensive coverage just in case, read on to learn about commercial flood insurance.
Why Flood Coverage for Businesses is Critical
Flooding isn’t as rare as people might imagine, and it doesn’t only occur in flood zones. Even when you think your storefront is well-protected against the elements, water can find its way in, whether through the walls, under doors, or even via drains. If there’s a will, there’s a way!
Quickly melting snow, a heavy rainstorm, or an overflow in a nearby river or creek can all lead to a flood. Forecasts can be wrong, and sometimes situations occur beyond our control.
The scariest part is that once water enters your commercial property, damage can begin. Circuits may short, drywall might crumble, and your foundation can even weaken. Within just 48 hours, mold can begin to grow, air quality can worsen, and furniture can swell. And don’t even get me started on lost stock and business interruption costs.
Many flood-related losses are uncovered because flood is commonly excluded from standard property policies. The biggest reason for this? Because many business owners wrongfully assume they’re already covered for flooding under their commercial property insurance policy.
What Standard Business Insurance Does and Doesn’t Cover
Your commercial property insurance policy helps cover a lot, which is why it’s essential. It can cover losses from theft, fire, or vandalism.
Your standard policy may also cover certain types of water damage. Water that leaks or sprays from burst plumbing pipes, a damaged roof (in some cases), an appliance, or a fire sprinkler may be covered.
Sewer or drain backup and sump overflow are often excluded unless you add specific coverage (varies by carrier and state). Under NFIP, sewer/drain backup is generally excluded unless the backup was caused by flooding in the area.
Gradual leaks and/or bursts caused by poor maintenance of plumbing pipes or other equipment are also often excluded from standard business insurance. From the eyes of insurers, it’s the business owner’s responsibility to stay on top of wear and tear.
Why Isn’t Flood Damage Included in Standard Policies?
Standard commercial property policies are priced to cover property damage, theft and crime, fire damage, certain types of water damage, and many other risks.
However, no single policy covers everything. Insurers would have to charge an arm and a leg to provide comprehensive business coverage. If your standard commercial property policy covered everything for the same premium you’re paying today, your insurer would be out of business within months.
So, to keep basic insurance policies affordable for most people while still letting insurers break even, coverage options are divided. This lets business owners choose the coverage they think they’ll benefit from.
But why doesn’t commercial property insurance cover flood damage when it covers water damage? Compared to non-flood-related water damage, flood damage can be more extensive. It can affect several businesses in the region, hitting an insurance company with several claims at once. It can be both physically and financially overwhelming for an insurance company.
That said, flood coverage is separate. It has its own pricing structure and claims process.
What’s Considered a Flood in the Eyes of Insurance Companies?
Determining whether a water-related incident was due to internal water damage or a flood, insurers consider multiple things:
- Were at least two properties affected?
- Were two or more acres of land impacted?
- Did the damage come from a natural (e.g., rainstorm) or external source (e.g., backed-up outside drain)?
Types of Commercial Flood Insurance
If you do want coverage for a prospective flood, you’d have to get commercial flood insurance.
There are two types of commercial flood insurance options for business owners:
1. NFIP (National Flood Insurance Program)
FEMA-backed and available through participating agents. These policies have non-negotiable maximum coverage limits. Rates and coverage are standardized, meaning they’re based on flood zone, building use, and building elevation.
2. Private Flood Insurance
Private flood insurance may offer higher limits and different coverage features than NFIP, but coverage and claims handling vary by carrier, underwriting, and event severity.
Private policies are usually the more affordable route for small businesses and contractors.
What Flood Insurance Covers
Here’s what most commercial flood policies protect:
| Coverage Type | What It Protects | Example Scenario |
| Building Coverage | Walls, floors, electrical systems, HVAC | Water rises into your shop and ruins the drywall |
| Contents Coverage | Inventory, furniture, tools, equipment | Rising water destroys back-room storage |
| Equipment & Machinery | Refrigerators, saws, mixers, compressors | Industrial gear takes in water |
| Cleanup Costs | Debris, sanitation, drying | Mud and silt left behind |
| Improvements & Betterments | Built-in shelves, counters | Custom fixtures damaged |
In addition, private policies may cover lost income and mold removal resulting from flood damage. They also tend to have higher limits for machinery and technology.
What Flood Insurance Typically Doesn’t Cover
While flood insurance is reliable in many ways, it doesn’t cover everything related to flooding. For instance, it won’t cover:
- Outdoor furniture
- Fencing or landscaping
- Company vehicles (claims are handled by commercial auto)
- Damage from non-flooding-related sewer backups
- Lost income, unless you add that option
Knowing the latter can help you determine what additional or supplemental coverage you might need.
You Don’t Need to Be in a Flood Zone for Flood Insurance
Skipping flood insurance because you don’t live in a flood zone is not a valid reason for avoiding this coverage. While it means you’re not as likely to experience flooding, the risk, even if slim, is still there.
Even those in low-risk zones experience occasional flooding.
If and when a flood does hit, repairs, remodeling, and replacing goods can devastate a small business, with a single incident often costing more than the combined monthly premiums.
How Do Other Types of Insurance Respond to Floods?
Your insurance policies react differently when you experience a flood. Here’s what to expect:
General Liability
General liability might respond if your work led to, say, a burst pipe. However, it won’t cover flood damage to your building, machinery, or supplies.
Flood insurance generally covers your insured building and contents. If you are legally liable for damage to someone else’s property, that is typically evaluated under commercial general liability (subject to facts, negligence, and exclusions). Flood insurance usually does not cover third-party liability.
Business Interruption Insurance
Some flood policies offer business interruption riders. Without this extension, it usually won’t handle your flood-related claims.
Commercial Auto Insurance
Unless you have a comprehensive auto policy, it typically won’t cover damage to your vehicle caused by flooding.
Tools & Equipment Policies
Tools and equipment coverage varies widely. Some inland marine or contractor’s equipment policies may cover flood damage, while others exclude or limit it. Confirm the cause-of-loss form and endorsements.
Costs of Flood Insurance
Typical annual NFIP commercial flood insurance premiums can range roughly from about $1,200 up to $6,000+, and private flood insurance may range from about $900 to $5,000+, depending on flood zone and property characteristics.
The cost is ultimately determined by your region’s flood history, how close your building is to water, and its elevation, among other factors. Whether you choose NFIP or private coverage can also affect your premium.
In the end, flood insurance premiums may be more affordable than paying out of pocket. Just replacing a commercial oven or piece of machinery can cost more than the annual cost of a high-risk policy.
How to Know if You Need Flood Insurance
Do any of these apply to you? If so, it might be time to get on board with flood insurance:
- Your storefront or shop is close to water.
- There are older drainage systems in your area
- Your building is at a lower elevation.
- Your town experiences wet weather (snow, rain) seasonally.
- You can’t afford to pay a flood claim out of pocket.
- Your building features a basement or is below ground level.
- You store valuables at ground level, like critical paperwork or expensive machinery.
Staying Financially Protected from Potential Flooding
Protecting your business from a future flood starts with a strategic plan.
Consider the following:
- Assess your flood risk regularly; it can change over time.
- Keep all inventory and crucial equipment off the floor.
- Make sure all points of entry are adequately sealed.
- Maintain your drain system regularly.
- Document all of your assets via an inventory list and photographs. Hang on to any serial numbers or receipts regarding your assets.
- Carefully review your coverage limits.
You can’t see into the future, so being prepared is the next best (and wise) thing to do.
Final Thoughts
The painful bottom line is that your regular business insurance policy isn’t going to save the day if you get hit with flood damage. If water came in from outside and led to the damage of your business’ possessions or property, it’s at that moment that your claim will get denied. That’s more than just water damage; it’s flood damage.
Not all hope is lost, though. When you opt for flood coverage, you can avoid the costly expenses that come from a flood. From property damage to loss of inventory, your flood insurance policy can ultimately help keep your small business up and running.
Here at USA Business Insurance, we’ve seen the unfortunate outcomes of a single flood on a small business. No matter your state or industry, we’d like to help you get the best protection.
Need a quick quote? Contact us today, and we’ll calculate what you can expect to pay for flood coverage that meets your needs.
