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Does Your Business Need Business Income Coverage?


Natural disasters are a risk we all live with. Here in Hawaii, we face a host of potentially devastating disasters including heavy rains and flash flooding, tsunamis, and hurricanes and accompanying storm surge/flooding. Any one of these events could damage your business to the point of forcing you to shut down for a time. And what happens then?

Sure, your commercial property and other standard business insurance policies will likely cover the loss of or damage to your building, equipment, and inventory and allow you to rebuild. But what about the lost customer sales and income while you’re rebuilding? What about the utility bills that are still coming in to keep the lights on? What if you have to move your operations to a temporary location?

Unfortunately, too many business owners find out too late that these things aren’t covered under their standard business insurance policies. And that just makes a disastrous situation even worse, because if you’re not financially prepared for a prolonged interruption of your business operations during a disaster, your first disaster could shut you down permanently.

Your business survived, but what about your key suppliers or customers?

Even if your own business comes through a disaster unscathed, what happens if your key suppliers or customers weren’t so lucky? If they’re out of business for a time, it could be devastating for you. This is what Contingent Business Interruption is for. Contributing properties are your suppliers’ facilities and dependent properties are your customer’s facilities. Either one could be destroyed in a natural disaster or fire.

Business interruption insurance – your lifeline to recovery

Most business owners know they need to have insurance for their property, equipment, products, and employees. Yet a shocking number of business owners don’t think about insuring their lost sales and lost income should disaster strike. It’s a huge gamble. According to FEMA, 40 percent of businesses never reopen their doors after a disaster. Lack of income protection is one of the reasons many of those businesses fail.

That’s what Business Interruption (BI) insurance is for. Does your business really need this coverage? If you want to ensure that you can replace your lost sales and income during a disaster and be able to rebuild, the answer is “yes.”

What’s covered under BI insurance?

The purpose of BI insurance is to get your business back on its feet and on the same financial footing it would have been if the disaster hadn’t happened. BI insurance generally covers:

  • Lost profits
  • Fixed costs such as utilities and other operating expenses incurred during recovery
  • Relocation costs to move to/operate from a temporary location
  • Reasonable extra costs beyond your fixed costs that are necessary to continue operating during recovery

Business Interruption and Contingent Business Interruption insurance aren’t sold as a separate policy, but you can add them to your commercial property policy or include them in a package policy such as a Business Owner’s Policy.

Don’t let a natural disaster or fire turn into double jeopardy for your business. Make sure your business continuity plan includes financial protection for the sales and income you might lose while you rebuild. Talk to your independent agent to find out more about business income insurance. Also, make sure to ask your agent if you should carry flood insurance.