“Can’t Stop, Won’t Stop” With Business Interruption Insurance
Dan Levenson July 09, 2015
As a business owner, there are a number of things that could occur to hurt the productivity of your business. Natural disasters can leave your company at risk in various ways, including loss of power, loss of equipment, or even loss of facility
Consider the following scenario: You have to vacate the area due to an oncoming hurricane or tornado. You return to the scene to find your equipment damaged by wind and water, or it was hurled away. Not only will you be displaced because of the damage, you don’t have the inventory you need to keep your operations going. How will you relocate to another facility, replace all your products and replace the funds needed to make this happen?
One prolonged power failure that directly affects your sales can cost you hundreds of thousands of dollars that you can’t replace. If this happened to you, how would your business survive? Having business interruption insurance in place can assist to alleviate some of those costs.
What is Business Interruption Insurance?
Business interruption insurance was designed to assist a property insurance policy or a package. This type of insurance has a number of advantages. You will be compensated for any income you lose if you have to abandon or vacate your building due to any damage caused by the disaster. The amount you are reimbursed based on the revenue you would have lost according to your financial statement
Without business interruption insurance, you won’t have any fail safes in place. Most standards policies for business only cover loss or damages for equipment, inventory and your structure. It does not usually cover loss of wages.
Even if there is a significant amount of money in a savings account, using all your savings to recoup your losses does not make good business sense. If you have to use all your savings to keep the business open, if another disaster occurs, you won’t have any resources to fall back on.
How much business interruption insurance coverage will you need?
The amount of coverage you need will depend on your activities and the area in which your business resides. If you live in an area where natural disasters are high, you may need a larger policy to cover your business expenses after a disaster occurs. There are other factors to consider when making this decision, including:
- How soon do you think you would be able to find another location?
- How much do you rely on your internal technical equipment?
- If the disaster was devastating, would you have issues finding another location due to other businesses being displaced?
- How much of a loss can you sustain?
Because this is a policy that works in conjunction with your other business policy, knowing the answers to these questions is key in obtaining a policy that would work well for you. No one likes to think about their business being in jeopardy due to an unforeseen circumstance, but being prepared whether you use the insurance or not should give you some relief in knowing your business will be covered.
You can never estimate the time it will take to recover your operations once a natural disaster has taken place. Your policy limits should cover a certain period of time to ensure you stay open.
How comprehensive are business interruption insurance policies?
Business interruption insurance policies are as comprehensive as you need them to be. Most policies will cover your utility bills and can even cover your payroll expenses while you are getting things in order. When determining your needs, it is best to work with a qualified insurance professional to find out additional options that may fit your needs.
Remember: It’s always better to overprotect your investment than not protecting it at all!