Disaster-Proof Your Business

Business interruption insurance can protect profits during disaster

Floods, tornadoes, fires, lightning, hail or maybe even an earthquake. Your business gets wiped out, your facility destroyed and you wonder about your future.

What preventive measures can you take to protect yourself and your business in case of disaster? Business interruption insurance.

Business interruption insurance is designed to protect the profits that a policyholder would have earned had there been no interruption. This insurance should protect policyholders who have to suspend production or close retail shops, resulting in lost sales and loss of profits. It also should reimburse policyholders for expenses that continue despite the cessation of income, such as salaries, professional fees, certain utility charges and insurance premiums.

"Business interruption insurance is very important, especially if you are involved in retail or manufacturing," said Bryan Kratky, of C&G Midwest Insurors. "If you are involved in any business where you would lose a customer base if the business had to cease operations for a few weeks, business interruption insurance is something you need."

Many smaller businesses have business interruption insurance already built into their insurance policies without their knowledge. Such a standard small-business owner's policy often includes interruption coverage for up to 12 months after a disaster, or insured incident.

Packages exist with more detailed interruption coverage. For example, instead of a 30-day waiting period for funds, more expensive policies are available that start from day one.

Marty Satz, of Insurance Consultants Inc., said more and more businesses are asking about business interruption policies. "A lot of people ask about these because they aren't sure they are covered, or they aren't sure they need the coverage," Satz said. "The Internet is also helping to educate businesses.

Information about our industry is so much more readily available today. People are doing a lot more research on their own."

Business interruption policies often include a provision for extra expense, which typically provides coverage for emergency expenses incurred to continue the normal conduct of the policyholder's business. These expenses include the costs of cleaning damaged offices; paying extra compensation to employees; hiring protection for the damaged property, such as security guards to prevent looting; paying additional rent at a temporary location; and paying miscellaneous costs in connection with reopening the business.

Authored by: Ron Ameln. Republished by permission of the St. Louis Small Business Monthly, The Source for Business Owners; July 2001