With adequate insurance, a business has options after a disaster. This is especially important for small businesses, where the owner’s financial health is often closely tied to the health of the business.
The cost of insurance will vary between companies. It also changes based on what deductible you choose, what coverage options you choose, and the size of your business. Ask any professional associations you belong to if they work with insurance companies that offer discounts to members.
Insurance can cover many different areas; here is a list to consider:
- A business owners policy or commercial package policy generally provides property protection, liability protection, and may also cover certain losses from business interruption (business income). Talk to your insurance agent about what your policy covers. Some businesses are considered high risk and may not be acceptable to all carriers.
- Property Insurance—Covers damage and loss of buildings, business inventory, and equipment. It can cover items that you lease as well as what you own. (You may also purchase coverage for other people’s property in your care, custody or control.) Ask about coverage for computers and data, and for vital records. If your business requires travel, find out what coverage your policy provides to equipment you use while you are on the road. Also find out if goods you own are covered while being shipped or in transit.
Property policies may exclude:
- Valuable papers and records
- Money and financial documents
- Property off of the insured premises
- Certain types of outdoor property
What happens without insurance?
- The owner may lose their investment in the business – which may be their life savings.
- The owner may feel compelled to reopen, even if the prospects for survival are not good.
- The owner may have to invest additional personal assets and even take on loans, further worsening a shaky personal financial condition.
Tenant or Fire Liability Insurance
- If you don’t own the building you are in, you may still be liable for damage to the facility. The liability portion of your BOP or commercial package should provide coverage for fire liability. Clarify with the building owner who provides insurance for disaster damage, as well as more common occurrences like broken windows or damage to plumbing. Make sure your policy covers what your landlord’s doesn’t.
Business Interruption/Business Income Insurance
- Covers lost income when the business is shut down. This is usually limited to shut downs caused by direct losses from events like fire, flood or tornado. You may also be able to get coverage for direct losses to suppliers and customers that cause your business to be interrupted.
- Examine your need for business income coverage for losses caused by a power or utility failure off the business premises, for example during a regional blackout.
- If staying open is important for retaining customers, look for a policy that does not limit extra expense recovery, covering additional necessary expenses that help you remain open during a repair period, even if they exceed the business income loss.
Investigate before you buy:
- Identify your assets at risk
- Look for exclusions
- Compare coverage and cost
- Look into adding flood, earthquake, and hurricane events to the policy if you have these risks.
Reassess your business insurance needs annually. Did you buy new equipment? Has the number of people on your staff changed? Have operations or the scope of your business changed? If so, is the new operation properly covered? As your business changes, your coverage needs may change as well.
For more information:
- Flood Smart: http://www.floodsmart.gov/floodsmart/
- FEMA: http://www.fema.gov/business/nfip/