Equifax

Finance Blog

Lack of Business Insurance Can Bring You Financial Ruin

Written by Loretta Worters on June 2, 2011 in Insurance  |   1 comment

Lack of Business Insurance Can Bring You Financial Ruin Loretta Worters, Insurance Insurance Institute If small business owners learned anything from the recent storms and tornadoes that tore through the southern and midwestern United States last month, it is that the fate of their businesses…

Lack of Business Insurance Can Bring You Financial Ruin
Loretta Worters, Insurance Insurance Institute

If small business owners learned anything from the recent storms and tornadoes that tore through the southern and midwestern United States last month, it is that the fate of their businesses can change in the blink of an eye. That lesson, let us hope, will lead small business owners to look more carefully at how they manage their risks. Large businesses generally have risk managers to advise them on the proper coverage, while small business owners must, in essence, be their own risk managers. But are they managing their risks appropriately?

According to a Travelers Companies 2010 survey, risk management ranks relatively low among priorities for small business owners. The survey found that small business owners prioritize activities related to growing their business over those related to protecting their business against insurable risk.

While there’s no way to lower the risk of a natural disaster, there are critical steps businesses can take to protect their company’s bottom line. The keys to recovery include a disaster plan and adequate insurance, including business interruption insurance (also known as business income insurance).

The question business owners must ask themselves is how long can I afford to stay in business without money to pay new and recurring expenses?

Don’t Overlook the Importance of Business Interruption Insurance

Too many small business owners fail to think about how they would manage if a fire or other disaster damaged their business premises to the point of being unusable. A business that has to close down completely while the premises are being repaired may lose out to competitors, so a quick resumption of business after a disaster is essential.

Business interruption insurance is one of those coverages you don’t want to go without. It can be as vital to a business’s survival as property insurance. Business interruption insurance covers the profits you would have earned, based on your past financial records, had the disaster not occurred. This policy will usually also cover any expenses and costs that the business must pay even though it can’t operate, such as utilities, rent, insurance premiums, payroll, and other expenses.

Business owners can purchase optional extra expense coverage on their property policy to pay for the additional cost of restarting and likely relocating their business while the original property damage is repaired. The extra expense coverage will reimburse the costs above and beyond the normal operating costs. This could cover equipment rental, space rental, and other expenses that are necessary to prevent a business from closing.

Business owners should make sure the policy limits are sufficient to cover their company for more than a few days. After a major disaster, it can take more time than many people anticipate to bring the business back on track. Generally, there is a 48-hour waiting period before the coverage kicks in. Coverage is available only for as long as it is necessary to get the business running again and usually not longer than 12 months.

The price of the policy is related to the risk and will therefore vary by business type. All other things being equal, the price will likely be higher for a restaurant than a real estate agency, for example, because the restaurant carries a greater risk of fire. Also, a real estate agency can more easily operate out of another location than a restaurant.

A disaster doesn’t have to mean financial ruin for a business…unless you’re crazy enough to go without business interruption insurance.

Loretta Worters is a vice president with the Insurance Information Institute. As a national spokesperson for the property/casualty insurance industry, she is frequently quoted in leading publications, including the Wall Street Journal, the New York Times, USA Today, Bloomberg Businessweek, Forbes, and Fortune and appears regularly on ABC, CNBC, CNN, and Fox. Ms. Worters serves as the industry’s chief crisis communications officer, developing and implementing disaster communications plans and working with national media during such catastrophes as Hurricane Katrina, the California wildfires, 9/11, Hurricane Andrew, and the Northridge Earthquake. Follow her on Twitter

Read More:
Save Money in 2011 on Your Premiums
Homeowner’s Insurance Costs: It’s Not How Much Your House Is Worth but How Much It Costs to Rebuild
Divorce and Insurance: Who Gets What Affects Your Coverage
How to Resolve a Claim Dispute with Your Insurance Provider

1 comment

  1. lily says:

    What if I just get to start a small business and don’t have much capita to shoulder additional pay? Are they any possible good options for me? i’ve look into this as well – http://www.insuranceproviders.com/do-i-need-business-insurance-services/ – but still thinking if it’s really critical to have it.


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Insurance Archive

Stay Informed Sign up for our FREE Equifax email Newsletter