3 Insurance Tips You Need to Know

Can Your Business Survive a Loss?

 

Property insurance for your business protects your business from loss to the structure and contents of the business. When you review your coverage, begin with the question "Can I put the business back where it was before this disaster?

 

All too often, business owners do not realize their business insurance is insufficient or that there are exclusions in the policy limit. Consider the following tips to eliminate some of the most common misunderstandings:

 

TIP #1: Obtain Sufficient Coverage & Review Coverage Limits Annually at a Minimum

 

Business property insurance coverage limits should be sufficient to rebuild the structure and replace fixtures at current replacement prices. This is not the same as a property tax valuation or valuation for real estate marketing purposes. Rather, it is the top down valuation of the total cost of replacement.

 

For example, a business owner could call a local contractor and ask, "If I hire you to build a 30,000 sq. foot warehouse with two loading docks, what would you charge me?" This estimate is a more accurate projection of needed coverage amounts.

 

After a disaster, your business will not be in a position to shop around for good prices, supplies will be short, and someone you know who can "build it cheap" is likely not an approved contractor. Overestimate your coverage limits if necessary.  

 

Annually, you should review changes to the structure and adjust your coverage limits appropriately.  

 

Avoid the temptation to insure only a percentage of the replacement cost. In most instances, the premium saved is not worth the risk of not being able to rebuild. Experience dictates that disasters strike at inopportune moments - especially when there is no rainy day fund. Proper coverage limits are your rainy day fund! 

 

 

TIP #2: Check Your Flood & Storm Coverage

 

Most commercial property insurance does not cover flood or windstorm damage. These are separate coverages.

 

Hurricanes, tornadoes and other severe storms raise awareness about the need for such coverage. However, in "quiet" weather years the interest in this coverage disappears. This is because premiums are expensive and may seem of little value without return.  

 

Your business may also need flood insurance if it lies in a floodplain.

 

TIP #3: Make Sure You Have Ordinance or Law Compliance Coverage

 

Traditional property policies do not cover costs associated with upgrading a structure to conform to building codes. Consider purchasing compliance coverage (sometimes called ordinance or law coverage) either as an endorsement or separate policy.  

 

Premiums are typically a very good value for the potential coverage.

 

Why is this policy needed? Building code laws often "grandfather in" existing structures. These structures do not have to comply with modern codes as long as the structure is not renovated or rebuilt. But after a disaster, if your building needs substantial work, then such construction must comply with modern codes.

 

For example, federal regulations require any structure in a floodplain damaged in excess of 50% of market value, be replaced and built according to modern floodplain building codes.  

 

A standard commercial property policy does not cover such compliance expenses. This coverage is critical to rebuilding after a disaster. Check with your insurance professional and make sure your business has this coverage.

 

Have questions? Contact us about our emergency pre-planning program to guarantee your peace of mind.