Property and Business Interruption
The Right Protection for Your Business Property
Business property insurance, including business interruption and/or continuation insurance, protects small business owners from losses due to theft or damage to physical space or equipment. For insurance purposes, business property may include all of the following, owned or leased:
- The actual building
- Furniture, equipment and supplies
- Computers and other data processing equipment
- Valuable papers, books and documents
- Artwork and antiques
- Television sets, VCRs, DVD players and satellite dishes
- Signs, fences and outdoor property not attached to a building
If you operate a business from home, other special considerations may apply.
There are three types of business property insurance:
Basic form covers losses resulting from a catastrophic event such as fire, lightning, windstorm, hail and explosion as well as the cost of removing property to prevent further damage.
Broad form includes basic form coverage extended for other types of perils such as a roof collapse caused by snow or ice, riot and civil commotion, etc.
Special form includes basic and broad form coverage plus all other direct physical losses except conditions specifically excluded and listed in the policy.
Businesses can buy property insurance at either actual cash value, which reimburses the insured for the assessed value lost, damaged or stolen goods after depreciation, or replacement cost value which reimburses the amount needed to replace, rebuild or repair damages with materials of similar kind and quality without deductions for depreciation.
Business Interruption and/or Continuation Insurance
Business Interruption/Continuation insurance can be added to a property insurance policy or purchased as part of a package. This insurance covers lost earnings resulting from an extended business shutdown due to circumstances covered by one of the property insurance plans above. Business interruption/continuation insurance covers expenses associated with running the business including payroll and utility bills. Coverage is based on the company’s financial records.
Property and Business Interruption Insurance Tips and Considerations
- Have your business property value assessed before you buy, and periodically after you purchase insurance.
- Keep copies of receipts for equipment, furniture and other valuables in the event your premises are destroyed. It’s best to keep physical photos in a different location as well as digital pictures stored on your computer or with a Web service.
- High-value specialty items such as antiques and artwork also should be assessed by a reputable appraiser before you buy property insurance. These items usually are only covered for an amount agreed upon before a policy is written. It is important to specifically tell your agent about these specialty items so the correct coverage is provided.
- If you lease your building or office, do not rely on your landlord to provide coverage for your business property. The building typically is insured only for the basic structure and common areas. Read your lease carefully, as there may be other requirements or penalties in the fine print. Check to see what is and is not covered so you are fully protected if something happens to your property and equipment or if someone sues for damages caused by you or your employees.
- A business property insurance policy generally includes a statement specifying the limit of liability. The limit of liability is defined as the maximum amount an insurer will pay for a covered loss. Typically, the insurer will bear responsibility up to a certain limit stated in the policy and the policyholder will be liable for amounts above that limit.
- Costs for business interruption coverage are tied to the type of business you operate. Less business interruption coverage is needed following a fire at a travel agency than at an art gallery as it will likely take more time for an art gallery to recover from damages.
- Even if you purchase business interruption coverage, make sure you have sufficient funds to tide you over the first few days of a business shutdown. Interruption coverage typically does not kick in for a specified time period after a disruption occurs.
- Review all insurance policies annually and note any changes that may affect your coverage costs. Premiums could be impacted by the addition or reduction of employees, clients product offerings or inventory; alterations to your building; or changes in state or local building codes.
- Businesses may be allowed to take a tax deduction for fire, casualty and burglary insurance premiums.
- Read individual policy terms carefully to ensure you are not paying for double coverage. This type of policy examination also helps ensure you are not missing crucial coverage in other areas.
- To expedite claims processing, document all business assets and keep detailed records of all insurance policies, premiums paid and other documents concerning losses and recoveries.