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Business Interruption Insurance
• Can you afford to wait?
Friday,
August 14, 2009
With the worst of hurricane season ahead of us, and violent storms swirling in the tropics right now, Margate insurance agent Rick Waldman asks small business owners in the city:
“Given the current economy, can you and your employees afford to unexpectedly close for a week, maybe two?”
Waldman has been insuring Margate businesses for more than 35 years, and though severe hurricanes rarely visit the city, some business owners are shocked when they do, he said. Many find out the hard way that their commercial policies don’t cover losses incurred when having to suspend business activities due to Mother Nature's wrath.
Typically, business interruption coverage is triggered by three limited circumstances, said the long-time insurance professional.
1. The physical damage of to the premises is of such magnitude that the business must suspend operations.
2. Damage to the property is such that it totally or partially prevents customers or employees from gaining access to the business.
3. An area in which a business is located is officially closed by the government preventing customers or employees from gaining access to the premises.
Waldman said business interruption insurance usually provides for loss of net income, temporary relocation expenses and ongoing costs, such as payroll.
"It allows businesses to continue paying employees instead of laying them off," he said.
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Misconceptions and Truths about Business Interruption Coverage
- Courtesy of the American Insurance Association
Misconception – Business interruption insurance serves no useful purpose.
Truth – This type of coverage provides vital protection when a business falls victim to circumstances outside of its control. The purpose of the coverage is to protect the business against losses arising from its inability to continue normal operations and its inability to occupy its premises.
Misconception – Business interruption insurance creates a disincentive to mitigate against losses.
Truth – The insurance pricing system already provides a built-in incentive for businesses to mitigate against future losses. For example, when pricing a commercial insurancepolicy that includes business interruption coverage, an insurer takes into consideration such factors as whether there are sprinkler systems and security systems, along with human factors such as whether the business has implemented an emergency evacuation plan and contingency plans following a catastrophe. In addition, as a condition of coverage, the insurance policy requires the insured to resume its operations as quickly as possible, and to take all reasonable steps to prevent future losses.
Misconception – Business interruption insurance should not cover ongoing expenses such as payroll because workers can collect unemployment insurance benefits.
Truth – First, unemployment benefits are always lower than workers’ actual wages or salary and may be inadequate to cover the displaced worker’s ongoing obligations, such as mortgage and child care expenses. Second, a worker should not be required to claim unemployment benefits if their employer cannot pay them because of a covered business interruption loss. Third, it is less disruptive to both the worker and the business for the employer to continue paying the worker during the time it takes to get the business up and running.
Waldman suggests in addition to considering business interruption insurance, small business owners should take time now to review their commercial insurance policies and fully understand what kind of coverage they have and the limitation their policies may present. Is plate glass covered? Does your current policy cover the replacement cost of existing technology? How long is the waiting period for relief? Is there a flood benefit?
Want to know more? Call Rick Waldman at 954-880-2624 or visit his website at 711insurance.com.
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Copyright Cassius Group 2009
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