As many business owners from California to the Caribbean found out the hard way in 2017, business interruption insurance can be as vital to your business’s survival as fire and other hazard insurance. When a business has to close down, whether the cause is a fire in the building or a wide-spread disaster, cash flow ceases and the business may lose customers to competitors. However, many expenses continue. A business’s creditors will still expect payment on installment loans, and its vendors will still expect the business to meet its accounts payable obligations for the goods and services they have provided.
Business interruption insurance can be the difference between survival and permanent closure. Here are some tips:
HOW IT WORKS
Business interruption insurance covers the revenue the company would have earned, based on its financial records, had the disaster not occurred. The policy also covers operating expenses that continue even though business activities have come to a temporary halt.
Business interruption insurance compensates a business for lost income if a company has to vacate the premises due to disaster-related damage that is covered under its property insurance policy. Accordingly, business owners would be wise to insure their enterprises against other types of hazards. Those will vary depending on the area in which they are located.
Businesses in California or other areas prone to earthquakes should have earthquake insurance, while those located in coastal areas in the eastern and southern portion of the U.S. should consider hurricane insurance. Companies doing business in the nation’s heartland would do well to be sure their policies cover wind damage that might be caused by a tornado.
Business owners should ensure the policy limits are sufficient to cover their company for more than a few days. After a major disaster, such as those seen in 2017, it can take weeks or months to get the business back on track.
AMOUNT OF INSURANCE
As with all insurance policies, the amount of the premium is related to the risk: the greater the risk, the higher the premium. For example, all other things being equal, premiums will likely be higher for a restaurant than a real estate agency, because the restaurant’s risk of fire is greater than for an office.
EXTRA EXPENSE INSURANCE
Another related type of coverage is “extra expense insurance.” Extra expense insurance reimburses a company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period following a disaster or other mishap.
A real estate agency may be able to rent temporary office space in another location, forward its telephone lines, and continue operations with minimal down-time. Relocating a restaurant to temporary quarters would be considerably more expensive and time-consuming.
Insurance experts say that usually, extra expenses will be paid if they help to decrease business interruption costs. In some instances, extra expense insurance alone may provide sufficient coverage, without the purchase of business interruption insurance.
For help navigating business insurance in the New Year, contact the Economic Development Collaborative-Ventura County. Conveniently located in Camarillo, California, we’re here to help.
Source: Insurance Information Institute