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Having business insurance is vital. Some types of insurance are required for businesses to operate legally, while others are optional. The coverage you should obtain depends on the type of company you run and the number of employees who work there.  But how much optional insurance coverage do you really need?

Here are three "optional" insurance coverages that business owners leave out of their insurance package, sometimes unknowingly, which could literally save the business in a time of crisis.

Business Income Insurance 

Business income insurance (also known as business interruption insurance) is an important but often misunderstood coverage. It is designed to replace income lost as a result of a disaster. This insurance policy is designed to supplement the resulting lost income as well as provide much needed dollars to pay continuing expenses such as salaries, rent and utilities.

According to the Institute for Business Home and Safety, 25% of businesses never reopen after a disaster or business interruption.  Business income coverage increases a business’ ability to survive a substantial loss.  So if your business has to close because of disastrous weather, national security threat, or because a tornado ripped half of your business apart, your business will still have income coming in.

While commercial property insurance protects your real estate and contents, business income insurance protects your business against loss to your firm’s profit-and-loss statement by covering continuing expenses, helping your firm preserve contractual obligations and retaining personnel.

Business income insurance will continually pay your business while it is down, allowing your business to be one of the businesses on the block to reopen their doors.

Equipment Breakdown Coverage

Take a walk through your business and look at all the big pieces of equipment that you would not like to replace out of pocket. All it takes is one person misusing the equipment, improper maintenance or a power surge that could wipe out your entire computer system.

You might mistakenly believe that your business property/casualty insurance will cover the damage.  However, business property/casualty policies only cover damage to your equipment from "external" causes, such as a fire, a flood or a tree falling on your roof. Those policies do not cover damage from "internal" causes such as mechanical failure, electrical short circuit or "arcing" (faulty wiring or motor burnout).

Losses related to equipment breakdowns are covered by aptly named "equipment breakdown" insurance. Equipment breakdown insurance (sometimes sold under the name of "boiler and machinery insurance") is an increasingly important part of any sound small-business insurance package for several reasons:

  • New technology, such as fragile electronic and computerized equipment, is subject to breakdowns that can be more frequent and costly than traditional mechanical equipment.
  • New business practices, such as Internet marketing and "just in time" inventory, make all businesses more dependent than ever on computer systems.
  • Critical business information often exists only on the Internet, or in online databases, that cannot be access during periods of equipment breakdown.
  • Employees are now traveling with many types of equipment that were once permanently attached to a fixed location, so breakdowns often occur in places other than the ones insured under traditional property/casualty policies.

Equipment breakdown coverage pays the cost to repair or replace equipment damaged by a covered accident. It can also cover business income losses that stem from an equipment breakdown and the additional costs you incur to speed restoration of business operations.

Most insurers are building equipment breakdown coverage into their commercial property packages. If you have an older policy, however, you may have to review it with your insurance agent to make sure it covers the high-tech equipment upon which your business now relies. If it doesn't, maybe it's time for an upgrade. 

Key Person Insurance

No one wants to consider the disability or death of a colleague. But if such a tragedy could lead to your company’s demise, then it’s worthwhile to consider key person insurance.

Typically, key person insurance covers the owner, the founders or one or two key employees. It is life or disability insurance purchased by the business and is payable to the business. It is beneficial when a company’s survival relies heavily on the role of one or two people.  When the "key person" dies or becomes disabled, insurance can help make up for lost sales or earnings or cover the cost of finding or training a replacement.

Sometimes one of the business owners can be replaced easily, but there may be an individual who has a specialized skill or who contributes largely to the company's growth. For example, there may be someone who specializes in a skill that only few people in the country have. Now an organization has to make a huge offer to get someone to move from half way across the country to work for them.

Whether you are an executive or not, take a look around and see what would happen to the business if a certain employee would pass away, or become unable to work.

Often times these optional coverages are assumed to be in the business owners policy but in fact they are not. Review your business insurance policy to make sure everything important in your business is protected (not just the building and liability).

Contact us for a free policy review and we’ll ensure your business is properly protected!

Posted 9:14 AM  View Comments

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Roe & Associates, Inc.
7089 Rivers Ave | North Charleston, SC 29406
| Ph: 843.740.1723
| Fx: 843.740.0178
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