RISK EDUCATION – If a natural disaster or other catastrophe, such as a fire or a robbery, should temporarily close your business down, you could be facing another disaster—the permanent closing of your company—if you don’t have your stream of income insured.
Business Income Insurance (or Business Interruption Insurance) is a vital protection and should always be included in your commercial coverages.
You’re insuring the most valuable asset your company possesses—your stream of income.
Income acts as the lifeblood of your company. Protecting this lifeblood can determine whether you live or die as a company.
A Misunderstood Coverage
Most businesses either think they don’t need Business Income Insurance or they just don’t think about it at all.
This type of coverage is also frequently misunderstood.
Companies will insure their properties, equipment and machinery, but may not think about insuring their income.
And some agents won’t bring up Business Interruption Coverage, unless it’s built right into their usual forms.
What you are basically insuring is the loss of income from the beginning of the claim period until your business can be fully restored and earning an income that equals the pre-event amount.
Coverage Should Be Carefully Catered
Just like other types of insurance, Business Income Coverages include conditions, limitations and exclusions.
All these considerations are just as important as having the coverage at all and will ultimately determine what is paid, how it’s paid and when it’s paid.
Coverages are available to expedite recovery and help with extra expenses. Some income loss payments could even be made in advance—IF this is written into YOUR policy.
Your loss of income protection should be catered carefully to your exact business needs.
All types of scenarios should be considered to make sure you are adequately protected.
Ask yourself, “What if?”
Would you be covered if a catastrophe hit your area, but your own facility was undamaged?
If all the surrounding roads are impassable:
- Your fleet can’t deliver;
- Your suppliers can’t deliver, either;
- Your employees won’t be able to travel to and from work; and
- If you are retail, your customers can’t get in and out.
Make sure your particular policy covers all these types of situations.
Get Professional Advice
When calculating exactly how much Business Income Insurance you need, it’s best to consult with a professional Risk Manager.
Offering unbiased advice, an Independent Risk Manager can help you determine exactly what types of coverage you need AND the correct amount you need.
Your Risk Manager will help you complete a detailed Business Income Worksheet for your company.
You can find worksheets online, but Risk Managers provide the expert knowledge needed to correctly estimate all the many variables.
- Net Annual Sales (after taking away the Cost of Goods Sold);
- Ordinary Payroll;
- Net Income and Expenses;
- Factors for Repairing & Replacing Items;
- Extra Expenses; and
- Many, Many More.
You will also need some funds for future finances—savings you’ll need to go back into business.
Plus revenue to pay salaries and continue employee benefits.
Not A Cookie-Cutter Approach
Deciding how much income you need to recover can’t be determined with a cookie-cutter approach.
There are no easy percentages to follow, because there is no specific number you can base a percentage on.
Each business is unique.
Each company will have a different amount that is needed to get them back into business as quickly as possible.
Only YOU will know how much money you will need.
Smaller businesses may be able to get back on their feet in a shorter period of time.
Larger companies, with huge manufacturing facilities, may take a lot longer to build back.
It all depends on what you make, how big you are, where you are located, what type of equipment you have and EXACTLY what happened to shut you down.
It also depends on the number of employees you have, their salaries, their insurance and benefits…
Is it going to be weeks, months or years before you can get back up to speed?
How much money you need depends on A LOT.
Tip Of The Iceberg
There are a multitude of factors involved—this post only touches the tip of the iceberg that is Business Income Insurance.
Most importantly, we just want to get you thinking in that direction.
We want YOU to consult with someone who has YOUR best interests in mind.
A Risk Manager is going to ask you, “How much money do you need to operate without income?”
And then, they’re going to build everything else around that specific amount of protection.
Hopefully, you’ll never have to use this type of insurance.
But if you do, a Risk Manager will make sure you get the correct amount needed to save your company.
And they’ll also make sure you’re able to collect that amount…
Because—Business Income Insurance is not only difficult to determine—it’s an even more difficult claim to prove.
A Risk Manager will probably insist that the cost for Forensic Accounting be built into your policy.
With an outside firm doing the forensic work, a hard claim to settle will become a much easier claim to settle (and usually for more money.)
A Stronger Position
You put your heart and soul (and possibly your life’s wealth) into your company.
Maintaining a stream of income can make all the difference in your future success.
Business Income Insurance also helps keep your business alive in other areas.
You can sit down with your banker, your suppliers and your customers and say, “We’re not running now, but our stream of income is insured just like the company was still running.”
That’s a strong position to be in.
If there’s nothing coming in—no income at all—you may have to close the doors.
Or even worse—face your banker as they force you to close the doors.
Ask yourself now: IF something destroys your facilities and you want to be able to keep your company—but you have to build it back—all while keeping your employees and other expenses going—HOW much money do you need?
Your next step: Contact someone who can help you get THAT amount of coverage.