Business income insurance pays for the loss of profits and the continuing expenses that an organization experiences after it suffers damage from a fire or other insured loss to its facilities.
After suffering a loss, with no revenue coming in, ongoing expenses can cripple your business, says Gloria D. Forbes, executive vice president with ECBM Insurance Brokers and Consultants.
“In many cases, it is the lack of, or inadequacy of, business income insurance that puts someone out of business after a fire or other interruption — more than from any other cause,” says Forbes.
Smart Business spoke with Forbes about why companies need business income insurance and how to determine how much your company needs to survive a crisis.
What size and type of companies need business income insurance?
The size of a company is irrelevant. Regardless of your company size, an interruption in your business will result in the cessation of all revenue.
There are various ways to customize coverage and a number of forms available that can help you tailor your insurance to your organization’s specific needs. For example, if there were a fire at an engineering or law office, those facilities would need the insurance proceeds to resume operations immediately following the loss. These needs would include money for additional rental space, computers, equipment — anything that would create a facility where people can get right back to work servicing their customers and generating revenue.
A manufacturing company with processes performed over multiple locations might need to spread a single insurance limit over all of those locations.
Often, organizations such as nonprofits mistakenly believe that they do not have an exposure because they don’t have a loss of profits after an interruption, but they do have continuing expenses and the inability to raise funds. There is a need of some sort for all organizations.
What are the factors to consider when purchasing business income insurance?
One of the most important factors to consider is the length of time you may be unable to conduct your business in the event that there is a major loss to the facility.
In addition to calculating the estimated expected profit, you must consider what expenses are likely to continue during the downtime. People often forget that there are many expenses, such as mortgages, loan payments, utilities and salaries that continue during the time that the business is not operating.
Another factor to consider is whether, when you open your doors again, your business will immediately return to the same level it was at prior to the loss. In some cases, it will take some time to regain customers once you are back in business.