Do You Need Flood Insurance to Protect Your Home Office?

If you will start a business out of your home, determine if you need flood insurance. In fact, even if you will lease office space rather than creating an office in your home, look into this coverage.

Who needs this coverage? Maybe you! Remember two things. First, your homeowner's insurance policy will not insure your business losses. Secondly, regardless of your homeowner’s insurance policy, you are not protected against flood damage, period. In fact, a close look at your homeowner’s insurance policy reveals that you are not protected against water that enters your house at or below grade. Further, in the event of earthquakes, landslides, the sinking or shifting of earth, or mudslides you are on your own. In the case of war or nuclear attack, you are not covered either.

Obviously, you can eliminate immediate flood risk by moving inland from the ocean and away from the banks of a rivers, creeks or streams. (One insurance agent confided in us, only half jokingly, to never live in a town that has a river, stream, lake or creek in its name because there is water and plenty of it nearby!)

You may well be in a safe area, except when a big storm hits followed by a big storm surge--so you need to be concerned. Even if you are on the side of a hill, you still need to be concerned about ground water seepage. In all of our home offices we have had over the years, we have always included the purchase of a tough little sump pump as part of our office equipment package, just to be on the safe side (see below).

Private Insurance Companies

Regardless of whether you are looking for flood insurance in Florida, Texas flood insurance or North Carolina flood insurance, private insurance companies have retreated from the flood insurance market and it has been left to the government to step in. In 1968, Congress created the National Flood Insurance Program (NFIP) to help provide a means for property owners to financially protect themselves. NFIP offers insurance to homeowners, businesses, and renters.

NFIP is administered by the Federal Emergency Management Agency FEMA), which works closely with nearly 90 private insurance companies to offer this insurance to property owners and renters. In order to qualify for this insurance, a community must join NFIP and agree to enforce sound floodplain management standards.

The NFIP, a federal flood insurance program, offers insurance, which can be purchased through property and casualty insurance agents. Although private companies have bailed on providing flood insurance, they still write the policies and you can still get a flood insurance quote. Rates are set and do not differ from company to company or agent to agent. These rates depend on many factors, which include the date and type of construction of your home, along with your building’s level of risk.

All policy forms provide coverage for buildings and contents. However, you might want to discuss insuring personal property with your agent, since contents coverage is optional. Typically, there's a 30-day waiting period—from date of purchase—before your policy goes into effect. So if a Hurricane Katrina is heading your way, its too late to get this insurance before the storm hits. Further, if you need this insurance for your home and your business, be sure to detail all of your needs to the insurance agent so that you are not surprised down the road when you try to make a claim.

If you lease office space, most commercial buildings in a moderate-to-low risk area qualify for coverage at a preferred rate. Preferred Risk Policy premiums are the lowest premiums available through the NFIP, offering building and contents coverage for one low price. You might consider this cheap flood insurance.

You can also opt for "Contents Only" coverage, if you prefer. Premiums start as low as $550 per year for both Building and Contents, while Contents Only coverage starts at $145 per year. Commercial coverage gives you up to $500,000 of insurance to protect your building and up to $500,000 to protect its contents, according to the flood insurance agency.

If you don't qualify for a Preferred Risk Policy, a standard rated policy is still available. Even though flood insurance isn't federally required, nearly 25% of all NFIP flood claims occur in moderate-to-low risk areas, according to the agency.

For high-risk areas, a standard rated policy is the only option for you. It offers separate building and contents coverage. A Standard Flood Insurance Policy (SFIP) is defined as a policy issued to insure a building and/or its contents. There are FEMA flood insurance rate maps or flood insurance rate maps that can be checked regarding your specific area.

Flood insurance premiums are calculated based on factors such as:

  • Year of building construction.
  • Building occupancy.
  • Number of floors.
  • The location of its contents.
  • Its flood risk (i.e. its flood zone).
  • The location of the lowest floor in relation to the elevation requirement on the flood map (in newer buildings only).
  • The deductible you choose and the amount of building and contents coverage.

Go to the government website FloodSmart.gov to learn more about national flood insurance. One of our editors went to the above mentioned website and was invited at the site to input his address, Zip Code, etc. to determine if he were vulnerable to floods at his home office. It was determined that he was adjacent to a flood-prone area and that his property was of High Risk. The website also offered to estimate flood insurance costs on his property. They were as follows:

  • Contents only: $145-$1,148.
  • Building only: $403-$1,701.
  • Building and contents: $509-$2,766.

Sump Pump...Your on-the-Spot Insurance Policy

What does a sump pump have to do with home office business insurance or, in fact, a home office? Not much, unless the office is below grade (where many of them are) and you get one of those 50-year rain storms (that seem to crop up every two or three years now) or a hurricane. Then the sump pump cost will be a trifle compared to its performance. Further, you will be glad you paid the extra money for a battery operated backup sump pump or the little electric generator to run the standard sump pump.

What is a sump pump anyway? Imagine a small basin on your basement floor--the lowest point in the room. Any water that leaks into the basement will collect in that basin first. These are called sump pump basins. The small electric or water-driven sump pump or water powered sump pump either sits in that basin (a submersed sump pump) or has a sump pump hose that drops into the basin. As water collects in the basin, the sump pump switch kicks on and begins the pump’s operation. The water will go into a sump pump tank or will be pumped through a discharge hose to the outside. If the sump pump is able to pump water faster than the inflow of water into the basement, it will keep your basement relatively dry. If more water penetrates the walls of the foundation than the pump can handle, your basement will begin to fill with water.

There are a number of excellent brands of sump pumps on the market that you can purchase today for prices ranging from under $50 to over $600. Here are a few:

The most prominent brands include:

  • The Simer sump pump.
  • The Wayne sump pump.
  • The Berkeley sump pump.
  • The Zoeller sump pump.
  • The Basement Watchdog sump pump.
  • The RIDGID sump pump.
  • The Flotec sump pump.
  • The Honda sump pump.
  • The ABS sump pump.

The most elementary sump pumps are easy to install, the more complex pumps will require at least some skill and patience. On the Home Depot website, there is a handy instruction sheet to teach you all about sump pumps.

Typically, a sump pump diagram is included in the directions. An effective sump pump backup system is key. When you really need the sump pump to work in a big storm, chances are your power will go out. You need a small generator or battery backup for that sump pump. Home Depot sells battery back up sump pumps. The sump pump battery back up can be a lifesaver keeping the basement and furnace dry and operational. There are hydromatic sump pumps and water driven sump pumps.

Many towns and villages will send the fire department around to pump out basements. The problem is that in severe weather conditions, there may be a delay in them getting to your home office. Further, when an emergency strikes, your local home centers and local equipment rental stores will quickly sell or rent out their generators.

If you have a below grade office, make sure the sump pump parts and protected by a sump pump cover. Often, you can buy sump pumps that have additional protection from the elements. Remember, it is a piece of electrical equipment that must sit in dirty water most of its life. If you have a below-grade home office, here is another piece of important advice--buy a dehumidifier because all of your expensive stationery and brochures could soon be damaged by a moist environment.

Glossary of Flood Insurance Terms

Here are some key terms regarding flood insurance from the www.floodsmart.gov website:

Federal Emergency Management Agency (FEMA) -- The federal agency within the Department of Homeland Security that is tasked with responding to, planning for, recovering from, and mitigating against man-made and natural disasters.

Flood -- A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder's property) from one of the following:

  • Overflow of inland or tidal waters.
  • Unusual and rapid accumulation or runoff of surface waters from any source.
  • Mudflow.
  • Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

Flood Disaster Protection Act (FDPA) of 1973 -- Made the purchase of flood insurance mandatory for the protection of property located in Special Flood Hazard Areas.

Flood Hazard Boundary Map (FHBM) -- Official map of a community issued by the Federal Insurance Administrator, where the boundaries of the flood, mudflow, and related erosion areas having special hazards have been designated.

Flood Insurance Rate Map (FIRM) -- Official map of a community on which the Mitigation Division Administrator has delineated both the special hazard areas and the risk premium zones applicable to the community.

Flood Zone (Zone) -- A geographical area shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map that reflects the severity or type of flooding in the area. Floodplain - Any land area susceptible to being inundated by floodwaters from any source.

Floodplain Management -- The operation of an overall program of corrective and preventive measures for reducing flood damage, including but not limited to, emergency preparedness plans, flood control works, and floodplain management regulations.

National Flood Insurance Program (NFIP) -- A federal program enabling property owners in participating communities to purchase insurance protection against losses from flooding. This insurance is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to buildings and their contents caused by floods.

National Flood Insurance Reform Act (NFIRA) - The purpose of the National Flood Insurance Reform Act of 1994 is to improve the financial condition of the NFIP and reduce federal expenditures for disaster assistance to flood-damaged properties. The act affects every part of NFIP, insurance, mapping and floodplain management. NFIRA also gives lenders tools with which to enforce requirements for flood insurance coverage mandated under the Flood Disaster Protection Act of 1973.

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