Volume 3 Number 25
June 19, 2006

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In today’s global economy, a business owner needs to know what can happen to all the hard work if the business is not correctly insured against the destructive force of a natural disaster such as a fire, tornado or hurricane. If the business does not reopen soon after a disaster, customers cab be lost to a competitor across town or to others halfway around the world. Skilled employees might have to leave to gain employment elsewhere. A fast resumption of business after a disaster is essential to the owner, the employees and the local economy. There is an applicable saying that a community does not recover from a disaster until local businesses recover.

While most business have insurance to cover their buildings and equipment, many business having to shut down following a disaster do not survive because they have no income for days, weeks or even months. Frequently, the businesses that do survive the disaster are the ones that have business interruption insurance.

Business interruption insurance compensates for lost income if a company has to vacate the premises due to disaster-related damage that is covered under the property insurance policy. Business interruption insurance covers the profits that would have been earned, based on financial records, income tax returns and recent operating statements had the disaster not occurred.

Business interruption coverage is typically not sold separately; it is either an endorsement to a property insurance policy or included in a package policy. Many options are available that can be purchased and may include lower coinsurance requirements (deductibles), payroll coverage for employees and officers and an anticipated return time to normal operations. Other options may include income lost from renting space to another business or extra contingency expense to cover higher prices paid to an alternate supplier when the original supplier is shut down and cannot deliver materials Make sure the waiting period in your policy is known that is applicable to the business.

It is recommended that a business eliminate any waiting period provision for any type of business income coverage, and instead have a known dollar deductible based the business's own level of risk tolerance. If there is a dollar deductible instead of a waiting period, the business won't be covered for the first losses up to that amount, but will immediately be covered in full for any amount above the deductible.

Services Interruption/Off Premises Power coverage can help with losses suffered from loss/damage to the property of any service provider including electrical equipment & systems, fuel, water, gas, feedstock, pulp, liquid gases, sewage, steam, telephone, fiber optic cable, telecommunications, heating, refrigeration and/or air conditioning systems, or utility plants. For example, this could include spoiled food at restaurants and supermarkets from interruption of power or telemarketers unable to communicate because of the disruption of phone lines.

The need for insurance is a fact of life in today’s business environment. Knowing how the insurance policy works, what the options are, what types of deductibles are involved and how related costs are set up are essential to the survival of the business. Business owners must meet with their Florida licensed insurance agents and review business needs on a routine basis. Schedule a meeting at least annually with the agent, financial advisor and CPA to make sure business goals are understood and that the team is working toward those goals.