Recent rains give you flooding concerns? 3 tips on getting the right insurance coverage
After the Harrisburg region’s recent five-day monsoon, now is an excellent time to review your flood insurance and make sure you have the coverage you think you have as well as the protection you need.
Even if your building is in a 500-year floodplain and wasn’t affected by this latest storm, it’s still not time to breathe a sigh of relief.
A 500-year storm just means there’s a 1 in 500 chance of getting deluged. If you live in the 100-year floodplain, the 1 in 100 odds of getting hit by a big storm in any given year is only slightly less than being in a car accident. Even if you have coverage, National Flood Insurance may be woefully inadequate for your building and contents. Reimbursement may depend on the “base flood elevation.’’
As the days of rain have shown, we’re seeing flooding incidents more often. Impacting some neighborhoods that never, or rarely, had issues. This was also the case in 2011 when Tropical Storm Lee dropped a foot of rain in Dauphin County, causing $200 million in uninsured losses. The Swatara Creek flooded neighborhoods in Hershey for the first time after swelling to a historic 27 feet. Some of these areas were flooded again by these latest storms. While we have learned from the flooding in the past ways to mitigate and protect our property from flood, there is still more we can do.
Buying flood insurance regardless of whether your property is in a high-risk zone is another way to transfer some of the financial risk. Here are three critical tips to help you figure out what you need to avoid any nasty surprises:
1. Acronyms to know: FEMA and NFIP
In the U.S., the National Flood Insurance Program (NFIP) sells flood insurance. It’s part of the Federal Emergency Management Agency (FEMA), which creates the flood zone maps used to determine risk.
Premiums for buildings in flood-prone areas can be expensive, but coverage for properties in non-risk regions can be less than $200 a year.
Deductibles can range from $500 to $10,000 and, in general, commercial coverage provides up to $500,000 for building damage and the same amount for contents ($250,000 and $100,000 for residential).
But that’s not as clear-cut as it sounds. Coverages can also vary depending on the kind of commercial building (nursing homes, mixed-use residential and retail, etc.) as well as differences between single family homes and condos, for example. Checking out www.FloodSmart.gov is a good place to start, but make sure you talk to an insurance professional who is certified to sell flood insurance.
2. One size doesn’t fit all
Especially for businesses, the NFIP limits may be insufficient. A large office building or factory that suffers foundation damage will likely cost more than $500,000 to repair.
The answer is excess flood insurance, predominantly sold by Lloyds of London. This coverage kicks in after you meet the NFIP limits and is a good option for companies that could see millions in losses. Policies start around $10,000 a year.
Additionally, NFIP doesn’t sell business interruption insurance – private insurance is your only option. Keep in mind, however, it only covers you up to the limit you are able to purchase and stops paying as soon as you reopen.
Business Interruption also does not cover losses your business suffers because of flood damage to the entire region, even if it brings the local economy to a standstill. Your property must be damaged by the flood in order to collect under the business income coverage.
3. Elevation matters
If you have property in a flood zone, the first rule is, “don’t fix up the basement or use it for storage.’’ Flood insurance will cover mechanicals such as air conditioners and furnaces, but it won’t pay for most personal or business property below grade level.
Less obvious is the need to make sure your equipment or personal property isn’t below “base flood elevation.’’ In low-lying areas, that could easily encompass the first floor. Whether you own or are renting space, you won’t get reimbursed for content losses below the base flood elevation.
You may have to check with the municipality or, especially if you’re looking to buy, have a surveyor determine the elevation.
While there’s a lot of information online, make sure you talk to an agent certified to sell flood insurance. It also makes sense to have an expert conduct an independent review of your insurance. The expert can examine your vulnerabilities in all areas and recommend the type and level of coverage you need.
Flooding is increasingly surprising people who were always high and dry. For most of us, flood damage is looking like a “when” and not “if’’ possibility.
I recommend homeowners and businesses alike have flood insurance and the time to get it is now. It takes 30 days to activate, so don’t wait until a storm is barreling toward you.