Looking beyond property protection

All business owners know the importance of having their companies properly insured, but are they truly being insured properly? When a business suffers a major property loss the property policy will cover the building property and business personal property loss per the limits of the policy, but the potential losses outside of the actual property loss can be where the real danger lies. We have all heard the old adage, "time is money," and in this case the time is "lost money." There is no better example of this then when a business is shut down due to a substantial loss. To a business owner this can be in the form of lost revenue and the extra expenses they will incur to get their business up and running again.

As a business owner you have the ultimate burden of getting your team focused to keep your business operating and generating revenue. Your employees are on the same emotional rollercoaster you are on because of the loss. They are feeling and thinking the same thoughts you are and probably have the same questions you have: Will there be a tomorrow for our business? Will I still have a job? Will I still receive a paycheck? The thoughts and questions are almost endless. So, how would having the right insurance coverage make you feel? This is where business income and extra expense and contingent business income coverage become so vital in the recovery and future of a business that suffers a substantial loss.

So, let's take a look at these coverages and their importance in the recovery process.

1. Business income coverage: Often referred to as business interruption coverage. This type of insurance covers the loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its ability to operate during the time required to repair or replace the damaged property.

2. Extra expense coverage: This is a time element property insurance that pays for expenses in excess of normal operating expenses that a company incurs to continue operations while its property is being repaired or replaced after being damaged by a property covered cause of loss. This coverage can be purchased in addition to or instead of business income coverage.

3. Contingent business income coverage: This coverage is for a loss in the net earnings of a business if a supplier business, subcontractor, key customer, or manufacturer doing business with the insured business cannot continue to operate because of damage or destruction. Where business income and extra expense coverage is activated with a loss that occurs to the insured's property, contingent business income coverage would be activated with a loss that occurs to the property of another business that you rely upon. Coverage follows your own property coverage; the cause of loss at the contingent business must be a covered peril for your property on your policy.

By the brief description of these three coverages you can see how they are and can be interrelated but yet cover three very different exposures to a business' ability to recover from a loss. It is important to note that these coverages are not automatically included in a standard property policy and that they must be added or endorsed coverages to the property policy. As with any insurance policy it is extremely important to discuss with your insurance agent that the limits of insurance be carefully determined for these coverages based on each individual company's needs, the available additional coverages, the loss conditions of the policies, exclusions and limitations of the policies, and coinsurance and or deductible conditions.

While all three coverages are separate in nature they are all vital components of a business's ability to stay in business at a time of a substantial loss. Business income insurance insures the net income that would have been earned and is based off assumptions of what would have happened had there not been a loss. Extra expense insurance covers such additional expenses you may incur; such as the cost to relocate to additional sites, the transfer of operations to other owned facilities, temporary expense of lost phones, communication systems and office equipment, and the list goes on. You also have an immediate and severe decrease in sales. Your immediate and future income could drop to just about zero depending on your type of business! But,you still have all the ongoing accounts payables associated with your business including but not limited to your payroll. Coverage would be extended for those bills that don't stop coming in just because your business is without revenue, and is temporarily shut down at your primary location.

Contingent business income coverage is designed to address the risk exposure of a company or supplier that your business relies upon for services or materials that has a substantial loss that affected your business's ability to operate. It reimburses you for the lost profits and the extra expenses associated with continuing your operations.

As you can see, these three coverages have a direct major impact on your business' ability to operate during the time of recovery after a loss. Consider the potential risk to your company by having an insurance policy that does not truly cover your financial needs at a time of a substantial loss.

Tim Kane is an independent insurance broker with L/P Insurance Services in Reno. Contact him at 996-6045 or tim.kane@lpins.net.