Small business owners are getting some reminders this month that the forces of nature can threaten a company’s survival. And that they need to be sure their businesses are well protected against a variety of disasters.
A storm in the Northeast caused flood and wind damage and left thousands of businesses without power. Meanwhile, residents of the Upper Midwest prepared for the possibility that the Red River would spill over its banks as it did last year. An earthquake in the Los Angeles area brought back memories of how vulnerable companies can be to such natural disasters.
Flooding, wind and earthquake damage are all part of the seen in the Pacific Northwest, where the rivers usually swell in November.
Business owners whose cash flow is strained by the recession might decide to cut back on disaster insurance or eliminate it altogether. Faced with making their payroll or preparing for a disaster that may never happen, many owners decide to take their chances and skip the insurance.
Data from the insurance industry shows that the recession has made business owners more reluctant to buy coverage.
Some owners decide to gamble on being uninsured or underinsured. Others who buy insurance after a disaster often lose their sense of urgency as time passes and another calamity doesn’t occur, said Loretta Worters, a vice president at the Insurance Information Institute, an industry organization. So they cut back on their coverage.
A small business should at the least consider getting the most basic coverage, known as a business owner’s policy, That generally has property insurance, liability protection and business interruption insurance, which can be critical when a company is dealing with the fallout from a disaster.
Those won’t protect businesses from damage due to disasters like floods, earthquakes and landslides. A business needs to purchase coverage for those disasters separately.
Some of the bad weather covered by the owners policy includes wind, rain, lightning and snow. If a hurricane tears a hole in your building’s roof and rain comes in, regular insurance should cover the damage. But if water from a flood pours into your ground floor, you won’t be covered without separate flood insurance.
If you run a company out of your home, be aware that a standard homeowners or renters policy may not cover damage to your business equipment. The more complex your home-based business is, the more likely you’ll need a separate business policy.
It’s a good idea to learn about insurance and then assess your needs before you contact a broker. You want to be sure you’re not buying too little, or that you don’t end up buying something you don’t need.
Beyond the right kinds of insurance, Worters noted that companies need to buy the right amount of coverage. Accurate financial records need to be kept to help owners determine how much to buy. An accountant can help with crunching the numbers.
Some owners might opt for cheaper commercial property and casualty insurance rather than what’s contained in the operations policy, and not pay for business interruption insurance. That decision could prove fatal if disaster strikes your company — or one of your suppliers.
Business interruption insurance pays a company’s operating expenses, including payroll, when it is shut down. The business interruption doesn’t have to be the result of a natural disaster. A power outage that sidelines a company is also covered by a business interruption policy.
Without this insurance, many companies are forced to lay off workers, or they can go broke trying to meet debt payments with no revenue coming in.
Joyce Rosenberg writes on small business issues for the Associated Press.
On the Web
The National Association of Insurance Commissioners, which represents state insurance officials, has a primer on small business insurance, called Insure U for Small Business, on its Web site at www.insureuonline.org/smallbusiness.
The Insurance Information Institute also has information on its site, www.iii.org.
You can learn more about flood insurance from the government Web site www.floodsmart.gov. Some flood insurance may also cover landslides.
Businesses in California can find out about earthquake insurance at www.earthquakeauthority.com.
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