Under What Circumstances is Commercial Flood Insurance Required?

5/10/2022 (Permalink)

Can Businesses Get Flood Insurance?

For many businesses in the U.S., flood insurance is an optional affair. It is not required and it is up to the company to decide if the risk/reward calculation makes sense. The management team will consider many items when making this decision:

• What would the premiums cost?
• How large could the losses be in a flood?
• How likely is a flood in a specific area?
  

A company in Maple Grove, MN might gamble that the risk of a flood is low and that they do not need the extra insurance. If the company is right, it will save by not paying premiums and it can put this money to other uses. If the company is wrong and it is hit with a devastating flood, the company could potentially lose hundreds of thousands of dollars.

Mandatory Flood Insurance
In some situations, a commercial enterprise must purchase insurance against floods. The parameters for this requirement include the following situations:

• The company is located in a high-risk floodplain
• The company has a mortgage with a federally regulated or insured lender
• The lender requires insurance for floods
  

The reasons for this requirement are many and fairly complex. However, it boils down to the fact that both lenders and government entities do not want to have to bail out companies that rack up large expenses and losses in a flood.

Helpful Commercial Insurance
Businesses cannot take the risk of not having a primary insurance policy that covers storm damage, fire damage and other perils. In the case of significant damage, the primary policy will pay for a variety of losses as well as the cleanup efforts of a qualified restoration company. In the long run, the services of trained technicians will likely save money by making necessary repairs to get the company back on its feet again.
While flood insurance is often discretionary, it is frequently a worthwhile purchase. The losses from a flood have the potential to cause great hardship to a company.