“Expect the unexpected” is an old axiom that has global applications. It’s a piece of advice that falls into the same category of Murphy’s Law, the familiar, though pessimistic, adage that predicts, “Anything that can go wrong, will go wrong.”
Business owners often prepare for the worst and hope for the
best. Large companies hire risk managers who predict risks and put together
custom coverage plans, but small business owners must rely on their own
knowledge or an agent to assist in creating plans. Even professionals can’t
foresee natural disasters or other unexpected crises, which makes
disaster-recovery insurance a must for small businesses with large investments
in property or inventory.
A 2010 survey conducted by Travelers Insurance revealed that
94 percent of small business owners are confident that their business is
protected against insurable risks; however, only 56 percent of those surveyed
had disaster-recovery insurance.
Business owners without disaster-recovery insurance may not
realize that their standard property insurance fails to cover disasters such as
flooding, terrorism or other external circumstances that disrupt day-to-day
operations. Unfortunately, this gap in coverage could have drastic
consequences. According to federal statistics, 43 percent of businesses that
close due to a natural disaster remain permanently closed; and 29 percent close
in the following 2 years.
Natural disasters aren’t the only unpredictable risk
factors. For example, would you be covered if a water main broke and flooded
your building? A business owner who has
business interruption insurance will receive reimbursement for lost income in
addition to necessary funds to repair damages. This business owner can retain
employees while the property undergoes repairs. The employer without this type
of coverage would be forced to lay off employees until repairs are completed –
or to pay employees out-of-pocket.
Many small business owners purchase a standard Business
Owners Policy or BOP, without researching the different areas of coverage. This
may be why only 56 percent of business owners surveyed by Travelers Insurance
were covered with disaster-recovery insurance. Though business owners may
assume their property is protected against the unexpected, a standard BOP may
be limited to maintenance and restoration.
For small business owners who are not heavily invested in
property or inventory, business interruption insurance may not be essential.
However, this does not exclude the home-based business. Many independent
business owners who work from home have admitted to having no extra insurance,
falsely assuming that their homeowner’s insurance will be enough to protect
against damages.
Most homeowner’s policies exclude business pursuits from
coverage. Insurance claims filed to cover equipment, software or inventory
could result in denial if an insurer were to tie the claim to a business
venture. Home-based business owners who are interested in business interruption
insurance should opt for a claim that includes an extra expense clause. The
purpose of this clause would be to allow for the relocation of a business while
the original property (the home) undergoes repairs.
Even though insurance is required to mitigate damages of the
unexpected, sometimes purchasing insurance can come at a risk. A new business
owner can overlook certain risks and find himself underinsured; while a
business owner who chooses an unreliable agent could overspend on policies.
Business owners who make self-education a priority can avoid such unnecessary
and expensive mistakes.
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Carol Wilson is a versatile guest blogger who primarily
writes about global business trends and finance. When she's not writing for
sites like www.businessinsurance.org,
she enjoys hiking and fishing. If you have any questions or comments for Carol,
please send them to wilson.carol24@gmail.com.
George Torok Host of Business in Motion Business Speaker
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