Business income insurance is an important. As any prudent and responsible business owner knows, it takes more than just property insurance to safeguard your livelihood in the event of a severe loss.
In addition, a customized and thoroughly evaluated business income policy, specifically tailored to the individual needs of the insured, is crucial to achieving a complete financial recovery.
In order to provide effective coverage, all potential losses to the income stream of the business need to be carefully and extensively considered. Some of these important areas of potential loss are not so obvious. Too often, they are only discovered when they have a negative impact on the outcome of a claim.
The following are a few often overlooked or under-appreciated areas to consider when choosing the right coverage for your needs.
Suppliers and Customers
Many losses that have a catastrophic effect on income occur outside of the control and away from the physical premises of a business. A crucial supplier may experience a loss and be unable to provide the materials necessary for your business to operate.
The same could happen to a major customer, forcing them to drastically reduce their orders or go out of business completely. Unless suppliers or customers happen to be an affiliate or subsidiary, their losses are not covered by standard business income or extra expense policies.
However, their losses can be covered by a “business income from dependent properties” endorsement. Formerly referred to as “contingent business interruption insurance,” this endorsement extends your own coverage to one or more of a supplier’s or customer’s properties.
- Contributing Locations (A supplier to the insured.)
- Recipient Locations (A major purchaser and user.)
- Manufacturing Locations (A location that produces and ships product.)
- Leader Locations (An operation that attracts customers.)
The policy limits are the same as those set for your own physical location(s.)
Inflation doesn’t need to be in the double digits to cause business owners to worry. Creeping inflation can make it challenging to know how much business income insurance to buy in order to be covered for the worst-case scenario.
A good place to start is to review your income figures on at least a quarterly basis. In doing so, you can begin to adjust the coverage needed. Also important is to consider the future trends and growth of your business. Is your business planning to introduce new products? Are you moving into new territory? Will there be increases in your sales force?
Another option is to purchase “agreed value” coverage as an alternative to Coinsurance. This is done by submitting a statement of income values for the past year, as well as projected values for the coming year. Insurance is bought based on the earnings projected. Crucial to success of this process is the prompt and accurate reporting of current financial statements.
Civil Authority Clause
The standard ‘civil authority” clause included in business income policies provides for three weeks of continuous coverage for loss to property away from the premises of the insured, beginning 72 hours after the loss. It also provides extra expense insurance, which begins right away.
Whether the time allotted for coverage will be sufficient depends largely on the exposures of nearby properties and losses they sustain. The language of business income policies does not readily provide for extending the time limit. Some insurance underwriters may be willing to include an extension, but that is likely to require a substantial increase in the policy premium.
Additionally, it is important to note that some major potential exposures, such as floods and earthquakes, are not covered by the civil authority clause. Additional coverage for these can, of course, be purchases if required.
Have questions about your property insurance claim? Feel free to contact Stark Loss for more information about how a Public Adjuster can help.