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Business Interruption Insurance
Business interruption insurance can be as vital to your business survival as fire insurance. Most people would never consider opening a business without buying insurance to cover damage due to windstorms or fire. But too many small business owners fail to think about how they would manage if a hurricane or other disaster damaged their business premises so that they were temporarily unusable. Business interruption coverage is not sold separately. It is added to a property insurance policy or included in a package policy.A business that has to close down completely while the premises are being repaired may lose out to competitors. In a highly competitive situation quick resumption of business after a disaster is essential.

  • Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a hurricane. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses like electricity, that continue even though business activities have come to a temporary halt.
  • Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than anticipated to get the business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in.
  • The price of the policy is related to the risk of a hurricane or other 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. And, a real estate agency can easily operate out of another location.

Extra Expense Insurance

  • Extra expense insurance reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, in order to avoid having to shut down during the restoration period.
  • Usually extra expense insurance will only be paid if the extra expenses help to decrease business interruption costs.
  • In some instances, extra expense insurance alone may provide sufficient coverage, without the purchase of business interruption insurance.


  • Keep in close touch with your agent to:
    • Understand how your premium is being determined.
    • Inform him or her agent of the steps you are taking to prevent loss.
  • Make arrangements to use the facilities of another firm in the same line of work in case there is an interruption period. Some insurance companies offer a discount on business interruption insurance if your business has a place where it can operate in the event of a fire or disaster.
  • Store a backup of your electronic records off the premises.
  • Take a higher deductible on your policy. It will probably result in a reduced premium.
  • Buy a package policy rather than separate policies. Package policies often provide broader coverage at a lower price.
  • Consider installing ignition cutoff systems, alarms or hood and wheel-locking devices in company cars. Some insurance companies offer discounts for these items.
  • Discuss insurance with people in the same business. You may pick up trends in price and other developments which can save money.
  • Involve employees in all programs to prevent loss and maintain safety.


A simple answer is to calculate what you can afford to lose. Everything else should be covered by insurance.


An insurance company bases insurance premiums on the risks involved. To do this, they evaluate the situation to determine the risks, or potential for losses. The insurance company determines its rates on the results.

The steps you take today to lower your risks can not only help safeguard your business but may make you eligible for lower insurance rates. According to the Independent Insurance Agents of America, business owners should consider these steps:

  • Maintain adequate lighting throughout your business premises.
  • Keep electrical wiring, stairways, carpeting, flooring, elevators and escalators in good repair.
  • Install a sprinkler system, smoke and fire alarms and adequate security devices.
  • Keep only a small amount of cash in the cash register.
  • Keep good records of inventory, accounts receivable and equipment purchases.
  • Consider keeping a second set of records off-site, such as with your accountant, insurance agent or at home.
  • Make sure your employees have good driving records.
  • Make sure your employees know how to lift properly and use all necessary safety equipment, such as goggles, gloves and respirators.
  • You should consider using the services of a risk manager. An outside consultant can advise you of any safety or environmental regulations you may have overlooked.
  • Talk to your employees about safety practices.

You may also want to raise your deductible where appropriate to lower your premiums. How high to raise the deductible should be governed by how much you can afford to pay out of pocket. Be careful not to raise it so high that you cannot cover it should a loss occur.


Some business owners learn the hard way that they didn't buy enough coverage. Remembering to consider certain pieces of your business property when purchasing an insurance policy is vital to keeping your doors open.

Your business may not possess all the following types of property, but you can use this quick reference list to make sure you have thought of all property categories and any insurance coverage that may be warranted for your business:

  • Buildings and other structures (owned or leased).
  • Furniture, equipment and supplies
  • Money and securities
  • Accounts receivable records
  • Improvements and betterments you made to the premise
  • Boilers and machinery
  • Data processing equipment and media (including computers)
  • Valuable papers, books and documents
  • Mobile property such as automobiles, trucks and construction equipment
  • Satellite dishes
  • Signs, fences and other outdoor property not attached to a building
  • Intangible property (good will, trademark, etc.)
  • Leased equipment


  • Review your current insurance coverage. Is it enough to get your business back in operation after a disaster? Will it cover the replacement cost of vital facilities? Make it a regular annual procedure to review and update insurance. Also remember that insurance on mortgaged property probably only covers the lender with nothing left over for you.
  • Be aware of your "contents" insurance. Does it cover the replacement cost of critical equipment?
  • Know what your insurance does not cover. Most general casualty policies do not cover flood damage. Many require additional riders for windstorm, sewer backup, or earth movement. Consider adding coverage for likely perils, especially flood insurance.
  • Consider business interruption insurance that assists you with operating needs during a period of shutdown. It may help you meet payrolls, pay vendors, and purchase inventory until you are in full operation again. Also be prepared for the extraordinary costs of a disaster such as leasing temporary equipment, restoring lost data, and hiring temporary workers.
  • Don't assume that, just because you haven't experienced flooding before, it will never happen. Flooding patterns can change dramatically with development: water, which runs off new streets and parking lots, may overwhelm nearby streams and surrounding land. Landslides and sinkholes may develop because of distant earth movement, natural or man-made. The creek by your building may be a tiny, placid stream that has never flooded, but a downpour may change it into a destructive torrent that destroys your building foundation. Plan for the worst.



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