Ask Your Insurer Four Important Questions to Make Sure Your Business Is not Underinsured
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INSURANCE INFORMATION INSTITUTE
New York Press Office: (212) 346-5500; media@iii.org
Washington Press Office: (202) 833-1580
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NEW YORK, August 11, 2009 鈥 With peak hurricane season now approaching, it is essential that businessowners have the right type and amount of insurance. If you own a business, you should consider updating your policy to include improvements, major purchases and increased rebuilding costs, according to the 探花精选 Information Institute (I.I.I.).
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"Some of the most active storms have occurred from the middle of August to the end of October so businessowners should not be complacent,鈥 said Loretta Worters, vice president, I.I.I. 鈥淥ne of the biggest mistakes businessowners make is that they don't buy the right type of insurance and often have gaps in their coverage. Businessowners should contact their insurance agent or company representative annually to make sure that their insurance is sufficient."
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A Businessowner's Policy (BOP) is recommended for most small businesses (usually 100 employees or less), as it is often the most affordable way to obtain broad coverage. Combining both property and liability insurance, a BOP will cover your business in the event of property damage, suspended operations, and lawsuits resulting from bodily injury or property damage to others.
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BOPs do NOT cover professional liability, auto insurance, workers compensation or health and disability insurance, however. You will need separate insurance policies to cover professional services, vehicles and your employees.
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For medium and larger businesses, there are more comprehensive commercial policies. To properly insure your business, the I.I.I. suggests that you ask your insurance agent or company representative these four important questions:
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1. Do I have enough insurance to rebuild my business property and replace all of my merchandise and possessions after a disaster?
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A Building and Personal Property coverage (BPP) policy is commonly used to cover any combination of the following three broad categories: the building, your business personal property and the personal property of others. Often the covered building is owned by the insured. However if you lease the building, you may be required by the owner to insure it.听听
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Your Business Personal Property coverage includes seven specific categories:
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Furniture and fixtures
Machinery and equipment
Stock (i.e., merchandise held in storage, including raw materials, work in-progress and finished goods)
All other personal property owned by you and used in your business
Labor, materials or services furnished or arranged by you on the personal property of others
If a tenant, the improvements or betterments you have made
Leased personal property that you have a contractual responsibility to insure
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It is vital to accurately report and update the values of property annually to reflect inflation and other increases in cost.
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2. Do I have enough insurance to protect the personal property of my employees?
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If you have employees, you should add Personal Effects and Property of Others coverage to your policy. This coverage permits you to extend up to $2,500 worth of business personal property coverage to your personal effects and those of your officers, partners or employees and others in your care. The personal effects coverage does not include theft, even if theft is a covered cause of loss under the policy.
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If the $2,500 limit is inadequate to cover personal property to others in your possession, a higher limit can be purchased.
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3. Do I have enough insurance to keep my business open?
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A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster such as a hurricane is essential. In order to be able to do this, business interruption insurance is crucial.
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"Make sure the policy limits are sufficient to cover your company for more than a few days," said Worters. "After a major disaster, it can take more time than many people anticipate to get a business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in,鈥 she said, adding, "Too many businessowners fail to think about how they would manage if a hurricane or other disaster damaged their business premises so that it was temporarily unusable.鈥
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The price of a business interruption policy is related to the risk of disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency, for example, because of the greater risk of fire. Also a real estate agency can more easily operate out of another location.
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There are typically three types of business interruption insurance coverage. You can purchase any one of these or any combination that makes sense for your business:
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Business Income Coverage - Compensates you for lost income if your company has to vacate its premises due to disaster-related damage that is covered under your property insurance policy. Business income insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, such as electricity, that continue even though business activities have come to a temporary halt.
Review your annual financial records with your accountant to determine your annual net profit (total revenue minus total expenses). You should also have an approximate idea of how much profit you make鈥攁nd would therefore lose鈥攄uring a typical year. Purchase enough business income coverage to cover at least this amount of revenue.
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Extra Income Coverage - Reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period.
In order to calculate how much extra expense coverage you will need, an appraisal of your office building or any other operating locations should be made as well as a detailed inventory, not only of your product stock but also of your existing office equipment.
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Contingent Business Interruption 探花精选 - Protects your earnings following physical loss or damage to the property of suppliers or customers鈥攁s opposed to your own property. Companies today are heavily dependent on raw materials from key suppliers to make the products they sell. What happens if the supplier suffers a loss and cannot continue to deliver the product?
Make sure to determine how much revenue would be lost if you were unable to receive your product from your main supplier or if your customers were unable to buy from you.
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4. Do I have flood insurance?
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Flood insurance is available through the federal government鈥檚 (NFIP) and through some private insurers. To qualify for NFIP coverage, you must work in a designated community and comply with government guidelines for flood prevention. NFIP rates are the lowest available for flood insurance because it is a government agency and is federally subsidized. Coverage limits for a standard flood policy are $500,000 for the business structure and $500,000 for the business contents; coverage is provided on an actual cash value basis. Deductibles range from $500 to $1,000, depending on the policy you buy. Generally, if you buy a policy inside a floodplain (any area susceptible to being inundated by floodwaters), the deductible is $1,000, unless mitigation measures have been taken to protect the building.
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In addition to standard flood coverage, business owners can purchase an excess flood policy or a Difference in Condition (DIC) policy, either of which provides coverage limits over and above the maximum limits available directly from the NFIP or from private carriers participating in the program.听
Excess flood policies insure specifically against the peril of flood and are generally written to provide limits in excess of the maximum amounts available through the NFIP. DIC policies insure against many of the exclusions found in the standard "fire" policy, such as earthquake and flood. DIC policies often cost a little more than excess flood insurance due to their broader coverage. Coverage limits of $5 million and higher are often available.
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The I.I.I. is a nonprofit, communications organization supported by the insurance industry.