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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

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