Physical Destruction to a Business Could Halt
Income!
By Thomas M Kallman
Direct damage insurance is comparable to life and accident
insurance for individuals...it covers the "value"
of damaged or destroyed property, just as life or health
insurance covers the "value" of a person.
However, just like an individual, a business has to
survive during the period of recuperation. Business
Income (BI) Insurance does that by providing a kind
of disability coverage for "sick" businesses.
Why don't enough businesses buy this coverage? Here
are some of the possible reasons:
-BI losses are intangible and difficult to conceptualize.
It's easy to imagine physical ruins, but hard to quantify
the indirect losses and expenses that can arise from
the direct loss.
- It is difficult to foresee losses and predict loss
amounts. Projecting BI losses involves some educated
guesswork. It is particularly difficult for a new business
to do this accurately. Likewise, it is very easy for
a growing business to underestimate the amount of coverage
needed.
-Insureds (not to mention many agents) don't understand
it. Let's face it, Business Income Insurance is one
of the most difficult concepts in insurance. Thus, it
can be a hard coverage to write properly.
- Financial data is required that many insureds don't
want to release. Completing a BI Worksheet involves
examining, in many cases, confidential financial information,
particularly payroll and benefits
It is time consuming to gather financial information
and hard to calculate. Many businesses may not keep
the proper financial records to accurately complete
the BI Worksheet.
- Mortgagees, lenders and creditors usually don't require
it. Businesses focus first on essential insurance coverages
like those required by a mortgage company and those
for which a certificate of insurance must be produced.
This is a big mistake!
- Business owners have limited financial resources.
The insured must make business decisions about whether
to spend money on insurance or put it back into their
businesses.
Business Income (with Extra Expense) protects the insured
business if it must close due to damage to property
by a covered peril. If a business closes, it will lose
any profit it was making, some operating expenses will
continue (e.g., payroll, mortgage payments, etc.), and
it may incur extra expenses (e.g., overtime, equipment
rental, etc.) to expedite reopening or to maintain some
kind of partial or temporary operations. Three key considerations
in purchasing Business Income coverage are: (1) what
limit do I need, (2) how much will I be paid if I have
a loss, (3) what additional expenses will be needed
to re-open the business in the event of it closes? In
any case, rarely is the business over-insured. This
is particularly true when catastrophes strike because
it may take longer to restore the business than anticipated
due to labor and materials shortages. So, even though
there is no time limit for recovery, insureds often
find out that their limit of insurance is inadequate
to sustain them during such extended periods of restoration.
Examine your Business Insurance, and be sure this important
coverage is part of your overall protection. If you
do not see Business Income and Extra Expense coverage
as part of your policy, be sure to add this immediately.
Worksheets are readily available to help you determine
the proper amount.
Thomas Kallman is President of TMK Risk Management
Inc dba Kallman Insurance Agency.
PO Box 266736 Weston, Florida 33326. Phone: 954.389.5897
Fax: 954.389.6661
Website: www.tmkrisk.com Your inquiries are always welcome.
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