Does My Insurance Policy Cover a Flood on My Land?

Owning a farm can be a high-stakes enterprise, and you can't afford any event that would harm your business, especially flooded land. Inland flooding is one of the biggest risks to Americans. A lot of people don't think they necessarily need flood insurance but if you're near a river, a creek and you all of a sudden have intense rainfall, there's a flood risk. Even when your farm isn't on the Gulf coast, seriously flooded farms can happen. So it's important not to underestimate the risk and to ask the right questions about your farm insurance before the worst happens.

Even if you think you're covered by the insurance you purchased, are you sure it protects your farm from specific flood-related losses? Does it only protect your home if you live on your farm? Will it cover lost income if you can't operate your agribusiness or other enterprises on your farm after a flood? Farm insurance can be complex, so these are only a few of the questions to ask your insurance agent.

“With farms, you have so many risks," says Matt Barton, CEO of the Missouri Association of Insurance Agents. "There are so many things that need insurance coverage that it's possible you have to get them covered with different companies."

Why Buy Adequate Private Farm Flood Insurance?

If you live in a high-risk area, your state may require flood insurance on your property. But 20 percent of floods happen outside of high-risk zones. That may tempt farmers to forego crucial flood and other insurance products hoping their business, homeowners or renters' insurance policies will cover them in flood events. But, as many farmers learned after recent floods, those non-flood policies did not cover their flood-related losses.

In the spring of 2019, farms in portions of the Corn Belt, which includes many areas of the Northern Great Plains, Southern Plains and Midwest, faced devastating floods. Those historic floods left millions of acres of farmland under water for months, costing many farmers dearly. This farm business disaster left almost 20 million acres of farmland implantable.

That caused farmers and their communities billions in losses. Unfortunately, USDA disaster programs and private insurance farmers held didn't cover all the losses they experienced, like stored grain or income loss.

"If you think about the damage a flood causes, it can devastate, whether it leads to standing water for days or weeks or just a flash flood on your property," Barton says. "Water can create enormous damage to almost any structure or any equipment, making that structure uninhabitable or that machinery unusable.

"That's why it's important for each farmer to purchase flood insurance based upon the risk of loss they face with flooding," he adds. "There is no guarantee that the federal government would step in and offer financial support, so it's a huge risk to go without flood insurance if you're in an area that is flood prone. In fact, if you have a loan on certain properties, it is possible the bank or lender may require flood insurance."

Barton says the National Flood Insurance Program (NFIP) insurance, though heavily subsidized by the Federal Emergency Management Agency (FEMA), might be a great place to start. Climate change experts expect more frequent flooding on farmland nationally. On the Eastern Seaboard and the Gulf Coast, rising sea levels will contribute to farm flooding in years to come. So, having adequate farm flooding insurance is more important than ever.

What Should Farm Flood Insurance Cover?

Many policies exclude certain events and equipment from coverage in cases of farm flooding. It's essential you purchase farm flooding insurance specifically or insurance that covers floods as a business peril. And ask your agent if you need a special risk endorsement for farm machinery to get proper coverage.

For farmers, different insurance types cover floods.

"There is flood insurance that covers crops and flood insurance that covers equipment," Barton says. "Some insurance will only cover one thing, like irrigation equipment."

Make sure your flood insurance, whether government-subsidized or private, will cover everything your underlying or umbrella policy excludes when a farm floods. So, if your underlying policy covers dead livestock, only flood insurance will cover lost livestock feed. Failing to get enough coverage for each aspect of your farm business may lead to unexpected losses, too, Barton says.

"For example, if you have 10,000 bushels of feed grain stored in a silo that gets flooded, make sure your flood coverage insures the entire loss, not only a limit of 1,000 bushels," he says.

A flood insurance policy from NFIP normally carries a 30-day waiting period before it becomes active. Congress raised the waiting period to 30 days from five days in 1994 to combat purchases that took place immediately before a flood. However, there are still some exceptions to this 30-day waiting period. Your private insurance agent should know exactly what you can get covered and when you need flood insurance specifically.

What Insurance Should I Buy for the Most Flood Coverage?

Because many farms are mixed-use businesses, Barton says, “Farmers should have a mix of insurance coverage, both insurance products subsidized by the government and private coverage." Your agent should customize your insurance product mix to your specific needs for all your farm's business uses and design it to get you back in business quickly after a flood.

“One of the most important insurance coverages is loss of income, loss of use," Barton says. “If you can't use your farm or allow others to use your farm to do business because of flooding, that can represent a substantial income loss."

Marketed under different names, these loss-of-use or loss-of-income policies are like the business owner's policies non-farm businesses often buy. Properly structured for your specific needs, “they will cover your income and use losses while you get your farm operating again," Barton says.

Also, if you have vehicles of any type owned by your farm or used for business only, you'll need a business vehicle policy that covers these vehicles when they're damaged by floods. Neither your personal auto policy nor your underlying or umbrella farm policy will cover those uses. Be certain you get insurance coverage for every vehicle necessary to keep your farm operational.

What Do I Do if My Farm is Flooded?

For a flood claim, you'll need inventory photos, records and journals that include inventory weights and numbers, as well as calving or livestock inventory sheets or books. It's important to ask your insurer what else you'll need to make a claim, especially in flood-prone areas. Your documents should get digitized and stored on the cloud or kept with your insurance professional. Don't keep them anywhere a flood will destroy them.

Finally, if you have items private insurance doesn't cover in the event of a flood, or if certain coverage isn't available in your area, FEMA help may be available to you. Coverage may vary between states and in certain regions. Be sure to contact FEMA about your unique farm flooding insurance needs.