Commercial Property Insurance: Why You Need Business Interruption Benefits
Dan Levenson September 24, 2018
When you purchase a business, there are many things to account for in the business plan. You know that you must cover overhead — mortgage, rent, utilities, employee wages, supplies, and worker’s compensation. It’s typical to budget for one-time expenses and recurring expenses and hopes that your monthly revenue will be sufficient to satisfy these obligations. If you can’t, then you must have savings or a credit line to cover your overhead. When business owners plan for disasters, they will ensure the cost of the building and its contents, but they may not add coverage for business interruption.
Learn the Facts About Business Interruption Insurance
We don’t want your business to be overly vulnerable to the aftermath of a disaster. Please be sure to ask us your questions, but we invite you to first consider these insights into business interruption insurance:
- You should understand there will be costs not covered by your commercial property insurance. A fire or windstorm, for example, may damage the contents of the building. In addition, there could be a shutdown that lasts longer than you anticipate, including days, weeks, or months of repairs or renovations that must occur before you can restore the business to full operations. The loss of use of the facility can interrupt production or the delivery of services to customers.
- You must purchase business interruption coverage as an add-on to your commercial property insurance. This benefit is not sold separately.
- You want this type of insurance benefit to cover the wages you and your employees would earn if you didn’t have to shut down the company.
- You should plan for enough days of coverage because a benefit that applies to only a few days or a couple weeks may not cover the length of time the firm is inoperational. A severe disaster can mean weeks to months of partial or full closure.
- You want to plan for an alternate location where employees can work, but this is easier for some businesses to achieve than other businesses. For example, a computer-based business such as an accounting practice is usually easier to relocate than a restaurant, especially if the latter’s kitchen equipment is a total loss.
- You want to plan for the exclusionary period that applies to a business interruption benefit, which could be 48 hours or more. Any period of time that your business is inoperational will reduce your revenues for the month.
It’s not just enough to purchase the business interruption add-on. As a business owner, you must also maintain the appropriate kinds of financial records throughout the year. Following any disaster, the burden of proof will be on the business owner to show the normal revenues that would have flowed into the business if the building was operational. That being said, it’s wise to back up your financial records in a separate location, which could be a cloud-based data center. The backup source will help you prepare this information for the insurance company and get reimbursed for all business interruption losses in a timely manner. Purchasing more coverage than you need is preferable to having little or no insurance. If a period of an operational shutdown is long enough, an unprepared company might go out of business permanently, especially if the company owner failed to add the benefit to his or her commercial insurance policy.
We have more ideas on protecting businesses of every size from different kinds of loss exposures. There are other types of benefits you might need to include on your commercial insurance policy to keep you and your employees safe and to offset the aftermath of unforeseen events. While you may have peace of mind that your building structure and equipment is covered, consider how to continue operations when the normal way of doing things is disrupted.