PROTECTING BUSINESS OPERATIONS IN THE EVENT OF A LOSS
No one thinks it will happen to them.
You wake up to a ringing phone at 1:30 a.m. A representative from your alarm company has some bad news: “I’m sorry to inform you there’s a fire at your business. The police and fire department have been notified.” You rush out the door, speed off in your car and arrive at your business to witness the building engulfed in flames. It takes the fire department a few hours to put out the fire. And now everything is smoldering… everything is gone.
You’ve been told it’ll take 6 – 8 months to get your business up and running, yet expenses continue when no income is coming in:
- Customers may be lost to competition
- Staff may find another job while the business is closed
- Special machinery may have to be imported or custom built
- When the business reopens, it may take awhile returning to normal
What’s your plan for recuperation? How will you maintain your income and pay your bills? Businesses have a hard time surviving such a loss unless they have large capital reserves or Business Interruption and Extra Expense Insurance.
There are two types of insurance to replace lost income – Earnings, and Profits. The best approach to find out which is best is to ask yourself “Would the results of the business still be affected by the loss after the business has reopened?” If the answer is no, an Earnings approach is best. If the answer is yes, a Profits approach is better suited. Here’s the difference:
- Earnings: this approach treats a business interruption as “over” once the physical loss, or damage from a loss, has been remedied and the business is able to reopen. Coverage ends when the damaged property has been restored, or could have been restored with due diligence.
- Profits: this approach recognizes that a business interruption may continue to affect the business even after it reopens. Coverage under this type of policy lasts until the results of the business are no longer affected by the interruption (or for 12 months, whichever comes first).
Extra Expense Insurance doesn’t replace income; it pays the extra expenses incurred to keep a business going during a major loss – you may need to rent a temporary premise, or pay staff overtime due to an increased workload.
To maintain operations at the level they were prior to a loss, it’s important you purchase Business Interruption and Extra Expense Insurance. These two coverages will maintain profitability and reduce the risk of closure, loss of clientele and loss of staff.
Speak to your insurance broker to ensure your business is properly protected in the event of a loss.