Weather the Storm Financially with an Insurance Checkup
Profit, growth and stability are common businesses goals at risk when a natural disaster can demolish what may have taken generations to build. Many successful businesses transfer this risk through an insurance policy. The policy is a contract that should be periodically reviewed to help assure the needs of a business are covered.
One of the perils from a hurricane is flood.
The standard insurance property policy does not generally cover damage from the rising waters of a flood. A policy to cover this gap in coverage is available where floodplain management regulations apply through the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency. These policies are purchased from a licensed property insurance agent or broker authorized to issue the coverage.
Basic building flood insurance coverage goes up to $500,000 to repair or replace the insured building and its foundation, and other equipment such as electrical and plumbing systems, central air conditioning, furnaces and water heaters. The building contents such as tools, machinery and equipment will need to be covered with a separate flood policy. Higher limits of insurance might be available with an excess flood policy purchased outside of the NFIP policy. Discuss with your agent about the coverage types and limits of coverage needed.
Business owners and residents who own property in high-risk areas are required to purchase flood insurance if they have a mortgage from a federally regulated or insured lender. A policy could be purchased for just about any location, even for those outside of a flood zone. Locations less vulnerable to flooding are often eligible to purchase a policy at a much lower price.
Waiting until the last minute to purchase flood insurance is too late. There is a thirty-day waiting period, so you can’t purchase flood insurance just before the big storm and then cancel after the storm passes.
Other hurricane damages to property can result from high winds, wind-driven rain, hail and lightning which is usually covered under the standard property policy. However, many insurers have applied exclusions in some areas, so this also should be discussed with your agent.
Many businesses never reopen following a major disaster.
There is no revenue generated, but the bills keep coming. Employees may be unavailable to work when families are hurt or homes are destroyed. A damaged piece of machinery could be hard to replace and reduce productivity. Insurance is available to cover the loss of income from business interruption, however, this is usually not covered when the loss is caused by a flood. On the other hand, there might be coverage if the terms in the policy will pay when civil authorities order an evacuation. Read your policy and ask questions.
A few questions to ask:
- What flood zone is the business in?
- What will and won’t be covered in case of flood damage?
- What coverage options are available?
- How is the property valued: according to replacement cost or a depreciated actual cash value?
- How is underground property like basements, vaults and tanks covered?
- If needing to rebuild, is building ordinance coverage provided to upgrade to building code?
- How are extra expenses covered?
- Is there a coinsurance penalty?
- Are contents coverage limits adequate?
- How is the company’s income from operations that rely on another entity covered?
Dennis Hollatz has over 30 years of insurance industry experience. He is currently a staff consultant for field services and risk management of commercial business insurance exposures at Federated Insurance.