Disaster Coverage Made Simple
About one in five businesses suffer a major disruption each year. Of these, according to the Institute for Business & Home Safety, at least one-quarter will never reopen (some statistics say as many as 50%). One reason for the failure to survive is the lack of funds to keep going. The best solution to ensure the continued viability of your business is carrying adequate business interruption insurance (BII).
What BII covers
Business interruption insurance usually provides money to pay ongoing expenses (e.g., payroll, utilities, rent, etc.) when your business is suspended because of a disaster. It can also compensate you for lost profits (the money you would have earned if the disaster had not struck, based on your financial records). And it can pay for extra expenses you may incur to keep going, such as rent in a temporary location and overtime wages to make up for lost time.
BII usually does not pay for property damage; your property insurance policy covers this loss. However, BII is often sold as an endorsement to a property insurance policy or the two policies are sold as a package.
Things to check out
You may carry BII but not have the protection you think you have.
Make sure that:
Buy an all-risk policy if you can afford it, rather than a named peril policy that only covers certain events, such as fire. But even with an all-risk policy, you may have to add perils, such as flood coverage underwritten by the federal flood insurance program. Check whether your business owner’s policy (BOP) provides any BII and whether it is adequate for your needs.
Other considerations
Cost is always a factor in deciding on insurance coverage. Don’t try to buy a policy that meets 100% of your needs; it is just too expensive. More realistically, consider insuring for 80% of your anticipated needs. This will probably cost annually around 2% of the amount you are insuring. For example, if your policy covers 80% of the $12,000 you normally need every month for operating expenses and profits, your annual BII premium would be around $2,300 ($12,000 x 80% x 2% x 12).
Making a claim requires documenting your lost profits. To do this, you need adequate records, which can easily be destroyed in a disaster. It is highly advisable to store financial records offsite so that you can submit a substantiated claim when disaster strikes.
Talk with an insurance agent to access your BII needs and to modify existing coverage or purchase additional coverage for optimum protection.
