- Customer Service
First half or more of all businesses are eligible for “Businessowners” policies. These are package policies that incorporate many of the most commonly needed insurance coverage. Most “BOP” policies, as they are often called, include business interruption insurance without any specific dollar limit, but rather a time limit which is typically 12 months.
Following major disasters, a year’s worth of virtually unlimited coverage can mean the difference between survival and business failure. Unfortunately, not all businesses are eligible for a BOP policy, not is it appropriate for all businesses.
BOP policies are typically limited to smaller, low-hazard retail or service businesses
Other businesses are usually insured under a Commercial Package Policy>, or “CPP.” These packages are much more flexible than BOPs because they include many optional coverages not available under a BOP policy. A downside, though, is that the coverages built into a BOP policy must be added separately in a CPP.
Business Interruption Insurance is a good example of such a coverage. Unlike a BOP policy where there is a time limit rather than a dollar limit, under a CPP, there is a dollar limit but no time limit for business interruption insurance.
The biggest problem with this approach is that many business owners grossly underestimate the amount of coverage they need during the coming year.
To determine the proper limit, the business owner must determine, in the event of a total loss, how long it would take to rebuild or relocate and restore operations to their pre-loss level. Next, he or she must determine what would be the worst time of year for such a loss to occur, how much profit would be lost, and what expenses would continue or increase during that specific time period.
If the business is new or rapidly growing, the business owner can easily underestimate the amount of insurance needed and, as a result, incur penalties for underinsurance built into the policy. For situations like this, business interruption insurance often includes options that eliminate to some extent, and for a price, the underinsurance penalties in the policy, though the limit itself may still be inadequate.
Also, keep in mind that, after the business reopens its doors after several months, the level of business will almost certainly not be the same. However, business income insurance normally stops as soon as the business is fully operational again, regardless of the income stream at that time. Therefore, the business owner may need to purchase what is called an “extended period of indemnity” coverage. This pays the difference between what the business would have earned if it had never had a loss and its actual depressed income stream while it rebuilds its customer base.
One of the reasons some business owners don’t purchase this coverage is because, as you can see, it can get rather complicated. That’s why it is important to seek the counsel of a good independent insurance agent who is experienced in placing commercial insurance.
NOTE: Policy coverages and circumstances can change at any time, so the information above may not be accurate at the time of reprinting or subsequently to that time. IIABA does not assume and has no responsibility for liability or damage which may result from the use of any of this information. The most current, up to date version of this article can be found at IIABA’s Virtual University at http://www.iiaba.net/VU.