How Safe Are Your Company’s Profits After a Fire?

January 13, 2015

business interruption & loss of income insurance

image courtesy of Khuunaspix/

When it comes to protecting your business property from fire, wind, theft, and all of the other perils covered in your Business Property Insurance policy, the first thing on most owners’ minds is the restoration of the property itself.

If there’s a fire at the plant or office, damage to the building needs to be repaired, office equipments replaced, and materials used in manufacturing repurchased.

One thing that owners don’t often think of until after the loss is this: what happens to the business income and profits while the property damage is being repaired and replaced?

If you can’t manufacture your product, you don’t have anything to sell. If your office isn’t open, new clients can’t come in. And if you could temporarily open your office at another location, how do you pay the expenses of the other location while still paying property taxes, rent, utilities on the damaged location?

And if you don’t relocate, you can be sure your competition will be there for clients who can’t get in touch with you. A quick return to business after a disaster is crucial.

So, what do you do about all of this?

Business Interruption & Loss Of Income Insurance in the Utica Area

The term we use for the coverage that replaces lost income and pays the expenses of being out of business for a temporary length of time is Business Interruption/Loss of Income Coverage.

Here’s how the Insurance Information Institute describes the way it works:

“Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the revenue you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.”

We would add to the covered operating expenses mentioned above payroll. This is a major concern for our clients here in Central New York who want to be sure that their Business Interruption insurance also covers this important expense.

One thing to be careful of (and our Commercial Lines Team here at Scalzo, Zogby & Wittig, Inc. can help you out here) is to be sure your policy limits are sufficient to cover a loss for more than just a few days. If you’ve had a major fire, for example, it could take months for you to get back into business.

After all, your building needs to be renovated or rebuilt, your contents need to be replaced, and product components have to be reordered and shipped. This makes sense if you think about it: you’re getting bids and assigning a contractor, inventorying contents and then reordering what was lost, and going through the procurement of product components all over again.

And, Gary and Steve caution clients who use special equipment in their manufacturing process. Both know of clients who have ordered replacement specialty equipment that took much longer to arrive than the clients had planned.

Extra Expense Insurance is often included in the Business Interruption endorsement added to your business property policy. It covers any reasonable expenses you incur over and above normal everyday operating expenses to avoid having to shut down during the restoration period.

The rates for Business Interruption insurance depend on the fire risk of your business. This is similar to the way your Building Coverage is rated. As you can imagine, a restaurant is rated higher than an accountant’s office because the risk of fire is greater. Plus, an accountant can more easily operate out of another location.

We suggest you call us to talk about managing the costs of being out of business while your premises is being restored in the event of a catastrophic loss. Our consultation is free and it will help you set the limits you need for Business Interruption ahead of time so you get peace of mind now.

Until next time,

The SZW Team

Scalzo, Zogby & Wittig, Inc. is your New Hartford area independent insurance agent. Call us for a quote on insurance for your home, car, business, or life at 315.792.0000.