Homeowners need to understand the essential questions behind flood insurance including how does flood insurance work? This article will take a look at the ins and outs of this coverage type, give you answers on how flood insurance works, and provide you with the information you need to buy a high-quality policy.

When you’re done with this simple primer, you’ll be able to help others answer how flood insurance works and give them the help they need to find a policy that works for their needs. It will also help prepare your business for the worst.

flooded city with caption flood insurance 101

Where Do I Buy Flood Insurance?

When discovering how does flood insurance work, it is important to know where you can buy it. Typically, you must buy it directly from your business insurance provider. These providers can provide you with inexpensive or easy-to-afford insurance thanks to the National Flood Insurance Program or NFIP. This group formed to help protect homeowners and businesses from the dangers of floods.

However, you cannot purchase insurance directly from this group. Instead, it works with your insurance companies and agents to create a series of comprehensive policies that protect you at the time of an emergency. They also provide many resources through the Federal Emergency Management Agency or FEMA.

What Does FEMA Cover?

Fema National Flood Insurance Program what's covered

Link to the Fact Sheet of What Is Covered, courtesy of FEMA.

Why Does Flood Insurance Cost This Much?

Your flood insurance rates may seem like the most mysterious part of answering how does flood insurance work. It typically varies due to a variety of factors. These include:

  • the age of your business’ building;
  • the number of floors in the building;
  • where you have stored your items;
  • the risk of floods in the area;
  • the deductible set by your policy.

For example, if you store all of your most delicate items in the basement of your building, your insurance rate will be higher. That’s because it is working to protect these belongings in an area that is more likely to be flooded. Other influences include your business type and the risk it holds towards the environment. For example, if you have a print shop with a lot of ink stored in barrels or containers, you may have higher rates because the ink will get into the water during a flood and cause pollution hazards.

Is Flood Insurance Required?

Flood insurance is typically only a federal requirement for your business in a few instances. For example, those in a high-risk area need to purchase flood insurance. There are a few reasons for that necessity.

The increased risk of a flood makes flood insurance essential for these areas. Without it, you are at a higher risk of partial or complete business loss. However, if your business building is mortgaged with the bank, many federal lenders will ask you to get flood insurance. This fact is true even if you don’t live in a high-risk area.

Another situation that requires you to buy flood insurance is if you have ever received disaster assistance from FEMA or disaster loans from the Small Business Administration. It is necessary to get insurance if you ever want to get help from these groups again.

Do I Need An Elevation Certificate?

Another important aspect of flood insurance is knowing whether or not you need an elevation certificate. Typically, your agent will ask you for one to ensure that your building’s height is within the estimated flood area that could occur in your area. While this level can be somewhat hard to estimate in some circumstances, specialists are skilled at calculating it.

Without an elevation certificate, you may be denied flood insurance. That’s because your business won’t be influenced by the effects of a potential flood. It is also crucial to get your business involved in the Community Rating System or CRS. This group will help you get an elevation certificate and find high-quality flood insurance that protects your business.

What’s the Worst That Could Happen If I Didn’t Buy Flood Insurance?

Anyone who is answering how does flood insurance work may be wondering just how bad a flood can affect their business. The answer to that question is a little hard to explain. For example, minor flooding in a basement may only cost a company a few hundred dollars to fix. This low cost is especially true if they don’t have many expensive items stored below.

However, the damage can be a lot higher if your business has thousands of dollars of electronics or equipment in the basement. Imagine what would happen if you had a server for cloud storage in the basement of your building. If this server was fried due to the flood, you would lose valuable information that may be impossible to get back without paying a lot of money.

Even worse, a flood may rise above your basement and into your first and second stories. When this happens, you’re easily looking at thousands of dollars of damage that must be repaired. Without insurance to pay for this cost, you could lose all your office equipment, your paperwork, and end up with damaged walls, floors, and desks.

The worst case scenario here is damage to your foundation. Severe foundation damage can make your building unstable or even unsafe to occupy. As a result, it may be necessary to either repair this damage or move to a new facility. Both of these fixes are going to cost you a lot of money to implement and may lead to bankruptcy.

A Closing Note

By now, you should have a pretty good idea of how flood insurance works and a good idea of how it can benefit your company. Getting caught without it is a major mistake that can cost you thousands, if not millions, of dollars in repairs when a surprise flood hits the area.

So don’t hesitate to contact your insurance agent if you have any more questions about how does flood insurance work and need guidance towards picking a better policy. And don’t hesitate to drop a line in the comment section below if you have any tips or tricks on finding the best flood insurance for your needs.

First image: depositphotos.com.

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