Planning for Disaster: Is Your Business Interruption Coverage Adequate
Planning for disaster is important. Especially a disaster that could impact your business.Traditional business insurance may cover you for the cost of repairs to your premises, equipment or stock if they’re damaged by fire, flood or other natural disasters. And you should also be covered for any potential liabilities to others which you incur in the course of your business.But although these insurances are essential, they may not be enough.Are you confident that you have enough cash in hand to meet your regular outgoings during the period for which your business is closed and unable to earn any income?
Why You Need Business Interruption Insurance
If not, you need to think about business interruption insurance, a kind of coverage that will typically reimburse you for -
lost revenue and profits while your business is closed
regular operating expenses, including staff wages, taxes and loan repayments; and
any extra expenses incurred, such as the cost of renting temporary premises.
It might sound like the answer to every business owner’s prayer, but there are some caveats of which you need to be aware.
Some Common Limitations of the Cover
Firstly, you need to know exactly when your coverage will begin and for how long it will last. Most policies do not become active until at least 72 hours after the closure of the business - which may result in a significant loss in itself – and it’s all too easy to underestimate how long it will take you to get back up and running. So your coverage may well be exhausted before you’re earning again.Secondly, like most other insurances, business interruption policies typically come with important exclusions.Most importantly, as business interruption insurance is typically sold as part of a general business owners’ policy (BOP), you need to make sure that your underlying cover is comprehensive. For example, you will not normally be able to claim for business interruption caused by flood unless you have specific flood cover in your BOP.
Utilities
Utilities are another important common exclusion; and that’s reasonable enough since typically you won’t be using any electricity, gas or water while your business is closed. But these are often a substantial element of business expenses, so it’s worth taking advice on your policy wording to find out exactly what cover you have.
Partial Closure
Business interruption insurance will not usually cover losses arising from only a partial closure of your premises. But a partial closure, such as having your main retail space closed to customers while your back office remains open, maybe just as financially disastrous as a complete closure.
Documentation – What Your Insurer Will Want to See
And apart from any restrictions in the coverage itself, this kind of insurance is only as good as the evidence you have to support a claim.All insurance policies operate on the principle of “uberrima fides”, or utmost good faith, which in plain English means that you have to tell your insurer absolutely everything that they might regard as relevant. And a failure to disclose may allow them to avoid paying out, even if that failure had no bearing at all on the amount of your claim.In the context of business interruption, this means providing the insurer with full details of your premises and the way in which your business operates. In particular, you must keep careful records of your income and expenses, so as to be able to provide evidence of financial loss in a form you know will be acceptable to the insurer.Finally, it’s important to remember that business insurers are not looking to provide generic products, but rather to obtain a competitive advantage by offering a range of different coverages and exclusions.So again, it’s vital to talk to experienced insurance advisers to make sure you have the coverage that’s right for you.
Planning for Disaster: Talk to the Experts
At Brashears Insurance, we know that there’s no such thing as a single business insurance policy that will suit the needs of every enterprise. And we take particular pride in providing all our clients with a bespoke solution.So we’ll work closely with you to ensure your business has the essential protections it needs, and that you’re not paying extra for coverages you’re unlikely ever to call on.For an initial exploratory consultation, you can call us today on 805-564-7645 or send us a message here.