A few months ago, I was out for a run on a Saturday morning. As I was running down
Main Street, I noticed a lot of police cars and fire engines up ahead. When I was close enough to see what was going on, I realized that a fire had ripped through several businesses. This was no doubt devastating news for the business owners that morning.
Have you ever thought about what you would do with your business if you got that
dreaded phone call from the fire department? Maybe more important, have you ever thought about how your business would recover from that type of loss? Even with
Property Insurance, it could be days, weeks, or even months before you are able to
resume regular business operations. How would your company survive?
Your Property Insurance policy will most likely help restore the actual property that was destroyed. Eventually, your office, store or warehouse will be repaired or rebuilt. Your businesses’ equipment and inventory will be replaced. But what about the income that could have been coming in if your business was still running during that time? Is there a way to protect that? Luckily, there is.
Business Income Insurance
Business Income Insurance is an important part of any businesses’ insurance, and is triggered by a covered property loss. It is meant to restore your company to the same fiscal position you would have been in if there hadn’t been a loss.
Business Income Insurance covers basically four things (you will want to look at your own policy to see exactly what you are covered for):
- Net Profit
- Continuing Operating Expenses (utility payments, loans/leases, insurance, etc.)
- Extra Expense
Extra Expense coverage is an important part of Business Income Insurance. If your business is able to relocate temporarily and continue operations while repairs are made at your main location, the Extra Expense portion of this coverage would cover the expenses to relocate, pay the additional rent, advertise to customers to make them aware of the relocation, and to buy supplies to keep your operation going.
One other part of this coverage that you should consider is Extended Business Income. Let’s say your company suffers a loss, and after 10 months, you are finally ready to open for business again (this is known as the “Date of Restoration”). But during that time, your customers have gone elsewhere for the services or products you offer. It’s still going to take some time for you to let customers know you are back and ready to do business. It will take time for your income to work its way back to your regular levels. Extended Business Income coverage can give you some added help during this rebuilding time.
A Proactive Approach
Part of my job as an insurance agent is to help people see the risks they are exposed to, and help them either mitigate that risk, or prepare for it so that if a loss happens, they are able to recover quickly. The same is true with Business Income Insurance. We are all guilty of the “that could never happen to me” attitude. But we all know that sometimes, luck just isn’t on your side. And that’s why it’s important to take a proactive approach.
Proactive business owners and risk managers know that a well thought out business continuity plan can save time, money, and perhaps the business itself in the event of a disaster. There are some important questions that need to be asked when developing a continuity plan. These questions are also very helpful when working with your insurance agent to make sure you have adequate Business Income and Extra Expense coverage.
If my business had a fire or other significant loss:
- How long would it take us to either rebuild completely, or relocate?
- How long would it take us to replenish our stock? Would there be extra expense to expedite this?
- How long would it take to replace machinery? Is there any special machinery that has to be custom made or shipped in from another country?
- Do we have any machinery that could cause a bottleneck in our operations if it severely damaged? How quickly could this be replaced?
- Do we have any peak seasons, such as Christmas or spring time?
- Would we be subject to any rebuilding ordinances enforced by the city, like building codes, including ADA requirements?
These are just a few questions that need to be asked. However, asking them and taking time to really think about how your company would bounce back, can be invaluable. You might also find an added benefit of seeing ways your operation can be streamlined.
A True Lifesaver
There are many businesses that never make it back after a loss. However, with the right planning and the right insurance coverage, your company will make it back. Business Income Insurance, in addition to your Property Insurance, can be a true life saver for your business.
When I was out on my run and I saw the charred remains of the businesses, I couldn’t even imagine what the business owners were thinking. I hope that they had taken the time to get the right insurance coverage for their business, and to create a plan that would help keep their business going in the event of a loss.