How Business Interruption Insurance Fits into Your Disaster Recovery Plan
Each day, your business focuses on many objectives—sales, marketing, operations, and finance to name a few. As an entrepreneur, you oversee many functions that all contribute to the ultimate goal of a healthy bottom line. Whether you’re a one-man show or have surrounded yourself with a team of valued employees, you’ll experience some bumps in the road from time to time. However, for the most part, those trials and errors can be expected. Don’t lose sight of the perilous situations you can’t predict.
Can Your Business Withstand a Disaster?
While the odds of a disaster that halt business operations are difficult to forecast, natural occurrences such as hurricanes are more prevalent on the Atlantic Coast. Californians have experienced their share of earthquakes and wildfires, and floods wreak havoc just about anywhere in low-lying areas. In addition, all businesses, regardless of location, fall prey to computer hardware malfunctions. It’s also difficult to read the news without hearing about crippling cyber-attacks that push companies off the path to profitability.
Alarming statistics culled by the Federal Emergency Management Agency revealed that 40% of businesses affected by disasters never recover. Thus, preparedness is the key to bouncing back from catastrophic perils. Undoubtedly, you’ve secured property and liability insurance policies that cover property damage or unintentional acts that harm other parties. Sometimes overlooked, business interruption insurance should also factor into your disaster recovery plan. These policies offer income to help keep your company financially viable while ravaged facilities undergo repairs and compromised computer systems are restored.
Business Interruption Insurance Basics
You could view business interruption or income insurance as covering extra expenses that extend beyond physical damage incurred in a disaster scenario. These policies indemnify your business in three ways that traditional property and liability policies don’t address.
1.) Profit that your company would have realized had the disaster not occurred
Under normal circumstances, your company books income from sales of products sold or services rendered. The policy keeps that revenue flowing in, even though operations are halted. The amount of coverage might be predetermined or based on past experience.
2.) The expenses of normal operations despite a temporary shutdown
Even though the business premises are physically incapable of being utilized, business income insurance covers bills that must be paid. Some of these payments might include obligations such as mortgages, rents, taxes, and employee salaries.
3.) The cost to move those operations to an alternate location while your primary site becomes fully functional
If you have a proper backup plan, day-to-day operations can resume elsewhere should a significant physical loss be suffered at a principal worksite. The coverage offers payments for relocation costs and the expense to maintain that secondary location.
Like any other business insurance policy, some exclusions from coverage apply. Utility bills won’t be covered as services normally cease when a property is subjected to debilitating damage. Also, any loss not covered by primary property insurance will not trigger business income insurance payments. Therefore, you may want to acquire separate flood and/or earthquake insurance as those perils aren’t covered by standard business insurance packages.
It’s also important to realize that coverage varies between different insurance carriers. Be sure to examine the nuances of each policy so that you’re not hit with any unexpected surprises should a loss occur.
Your Bottom Line
While some areas of the country are more prone to natural disasters, devastation takes shape in many forms regardless of geographic location. Granted, the chances that your business might experience a calamity are slimmer than the odds of a minor setback. However, you simply can’t gamble with your livelihood. Make business income insurance a part of your comprehensive plan to ward off the paralyzing consequences of a major catastrophe.