You own a start up business that’s finally getting on its feet. You’re building a customer base, you’re making sales, you’re caught up on your bills, and even if you still have a massive business loan to pay you’re making good progress.
Then one day, there’s a fire on the premises. You lose inventory and equipment; and the space will take months of reconstructive work before it can be used again. What happens next? Your insurance will replace the equipment and inventory, and pay for the repairs of the space; but in the meantime, you can’t generate any revenue and your loan repayments and payroll obligations are still due.
The issue with fire insurance claims for businesses is that without business interruption insurance, you still may never get back up and running. If you don’t have business interruption insurance, here’s how it works and why your start up absolutely needs it.
Insurance That Pays Business Income
The most important thing about business income insurance is that it protects your operating income. If a fire or another disaster occurs that prevents you from operating, the insurer will pay you out for loss of net income (your income after factoring in the Cost of Goods Sold, but before taxes, wages, etc).
This way, you can keep up with bills, salaries, and other obligations that normally depend on your ability to generate revenue. It provides the policy holder with income they would have generated from the business if it were operational.
Limited Risk And Extended Risk
You know that it takes time for a start up to turn a profit. It’s a long climb toward sustainability, and a fire can leave you back at the bottom of the hill. If you’re unable to operate for any length of time, your customers will go elsewhere for what they need. Not to mention, once they leave it can take time and a lot of marketing to bring them back after you get up and running again.
That is why extended risk business interruption insurance is so important. It extends your period of recovery beyond the exact date restoration is complete. Usually, a period of recovery begins when the loss occurs and concludes when the property has been repaired, meaning you’re able to get back to business.
Extended risk insurance recognizes that it takes time to recover. Your policy will continue to replace lost income for a period even after repairs are complete, giving you more time to regain your customers.
Actual Loss Sustained
When your insurer makes a pay out, keep in mind there is a difference between Actual Loss Sustained (the cost and expenses incurred) and the money you as a business owner receive. That’s because insurers may not disburse all the money to you, but pay contractors involved in clean up and repairs directly. It’s an important distinction to make when you’re calculating the numbers you need to get back up and running from your insurance company in Cincinnati.
Additional Coverage
Sometimes your business can be interrupted by an accident not on your premises. Your operations could be stopped if a key supplier had a fire, if a service such as electricity couldn’t be delivered, or even if there was a fire at a “leader property” (a destination the generates traffic upon which your business depends).
There is more to insuring your business than just the property. Business interruption insurance can keep your company afloat after a disaster.
