Should my Small Business have Business Income Insurance?

Business Insurance, Insurance Advice

Here are some insurance types that a business must have in place as soon as possible:

·         Professional liability insurance

·         Property insurance

·         Workers’ compensation insurance

·         Home-based businesses

·         Product liability insurance

·         Vehicle insurance

·         Business interruption insurance

Let’s look at business interruption insurance and explain what this is. Business interruption insurance (also known as business income insurance) is a type of insurance that covers the loss of income that a business suffers after a disaster. If a disaster or catastrophic event does occur, a business’ operations will likely be interrupted. During this time, your business will suffer from lost income due to your staff’s inability to work in the office, manufacture products or make sales calls. This type of insurance is especially applicable to companies that require a physical location to do business, such as retail stores.

Business interruption insurance compensates a business for its lost income during these events. Business interruption insurance helps protect against lost income due to a covered peril listed in your business owner’s policy. Covered perils typically include theft, fire, wind, falling objects and lightning. Read your policy to make sure you know which perils your insurance helps cover.

Business interruption coverage may help reimburse you in two ways: 1) for lost income from the destroyed merchandise (minus expenses you would’ve already paid, like shipping); or 2) For extra expenses if you must relocate your business temporarily because of the fire.

Business interruption insurance has a coverage limit. A limit is the maximum amount your insurer will pay after a covered claim. Financial losses that exceed your coverage limit are your responsibility. That’s why it’s important to choose coverage limits that are appropriate for your business.

Here are a few things you may want to consider as you’re choosing the amount of business interruption coverage for your business:

·         How long would it take to get your business up and running after a loss?

·         If you rent, how well protected is your building?

·         Are sprinkler systems up to date and functional?

·         Is comparable commercial space readily available in your area, or would it take weeks to find a suitable location?

You may also want to think about the likely period of time to restore your business after a loss. This “restoration period” determines how much profit you might lose and can vary greatly depending on the severity of the loss your business experiences. For example, a small fire may require only a 30-day restoration period, while a major regional event like a tornado may require months.

The income loss covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.  But for companies that do not have a physical address that is crucial to their business, such as contractors, business income is probably not necessary.  For store front or main street business, like say a coffee shop, business income is a must because of the lost revenue should there ever be a fire.

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