Hurricane Season and property insurance.
In Part I, I wrote about our friend who lost his house to a fire and is now trying to see how to replace his home and belongings, only because he is severely underinsured.
Is being underinsured for your business any different than being underinsured for your home?
So, let’s talk about your business.
When we speak about a possible storm hitting our area we must immediately think of Property Insurance which may include more than one type of covered peril. The one coverage we are all familiar with is the one that rebuilds the office space or the actual building that you occupy in case of a catastrophic loss. In speaking about a loss to the whole building you must make sure that the coinsurance doesn’t leave you hanging out to dry. As I said in the previous blog, my intent is not to offer lessons in insurance, but to hopefully help you understand how important it is to have the right coverages in place. Having said that, make sure that your coinsurance is at least 80% of the value of the insured property.
There are two components to a Property Policy that are essential for all to have, unfortunately these happen to be optional coverages.
- One of these coverages is Wind. Wind is one of those perils that is specifically required by most commercial leases, so you can expect the majority of businesses that lease their space to be covered. What is concerning to me is that many business owners who own their own building may opt out of this coverage just to save a couple of bucks. In South Florida, not being covered for damages due to wind should be highly concerning to any person.
- The other coverage in a property policy which is important to have is Business Interruption. This is a coverage that unless the policy is a BOP (Business Owners Policy), which automatically includes it, like wind, BI is optional, and in most cases it is not required by the lessor. So, why is BI so important? First, it pays for a covered loss that makes the building or space uninhabitable. In other words, if you need to get into the building or office space to conduct business and you are unable because of the extent of the damage, BI may pay for moving you to a separate location so that you may continue conducting business. It may also pay for salaries for your employees during the time needed to close for repairs, if you are unable to move your operation to another location. Just think of your management team, and how important to your operation they may be. Think about not being able to meet your payroll because the business is not generating the necessary income and you don’t have a choice but to furlough them. The employee may not be able to afford to live on unemployment benefits so they need to get another job and move on with their lives. You could have lost a valuable employee because you may have chosen not to invest in BI. How about replacing your equipment, computers, machinery, valuable papers, etc., is that important to you?
- One issue that most people are not aware of is, while a fire or flooding due to a breakage in water pipes are covered, Business Interruption plays off the wind coverage. So, let’s say that you have chosen not to have your building covered for wind and a hurricane comes and blows away the roof or windows and makes the location uninhabitable, because you are not covered for wind BI will not kick in. So, if you have no BI or Wind coverage, like our friend in Part I who stood in front of his home to wonder what’s next, you’ll be standing in front of your building wondering how you are going to continue without the income needed to operate your business.
I know, I keep using CYA terms like “may” cover. That’s because no two policies are alike, and it all depends on the covered perils and exclusions as stated in the policy. As I keep reminding you, this blog is not meant to be a lesson in insurance. It is meant to motivate the reader to reach out to their insurance agent and make sure that the coverages that they have in place, whether home or business, are the correct coverages. If you are not adequately covered for every possible scenario, I am sure your agent will be happy to offer some better options.
Business Owners, you know that cheap is not always the best way to go. Attorneys and doctors don’t hire a mediocre paralegal or medical assistant in order to save money. They hire the ones with the best resume and credentials. The restaurant owner doesn’t hire a short order cook when they need a chef. Those in construction don’t purchase cheap tools that can break after two or three uses. They take pride in the tools that they use as well as the work that they do. So, why settle for an “affordable” (cheap) policy for your business?
For you, the fallout to not being properly insured could mean the loss of a business which you have worked so hard to create. One hurricane could blow away your lifelong dream.