Insurance 101: When Property Policy Isn’t Enough

At least one in four businesses that are forced to close due to unexpected events such as natural and human-caused disasters never reopen, according to a report by the Institute for Business and Home Safety (IBHS). With stats like that, auto glass shops should be prepared for unexpected events like Hurricane Harvey, especially considering many are small businesses, which can have a harder time recovering post-disaster. 

Most entrepreneurs have invested in property insurance, but what about insurance that covers lost revenue and other business expenses should your shop be closed suddenly due to a disaster?

Plan for the Worst-Case Scenario

The time it takes for a business to recover from a disaster, whether it’s closed for a few days or for a few months, can be detrimental to its survival, says the IBHS.

Enter business-interruption insurance. While property insurance covers the expenses of a building and its contents, business-interruption insurance provides coverage for lost revenue and other expenses during the company’s closure and recovery.

Interruption insurance encompasses all aspects of a business’s post-disaster restoration, including coverage for prolonged power outages and ongoing business expenses. It even gives owners the option to keep their employees on payroll.

However, there are limitations to this type of coverage. Interruption insurance works in conjunction with the insured’s primary policy. In order to receive lost income and other expenses, the primary insurance policy must include coverage from however the damage was sustained.

For example, if a company has wind coverage but not flood insurance, and a flood ravages the shop, business interruption won’t reimburse lost profit since flood insurance wasn’t a part of the company’s primary policy.

Looking at Houston, many businesses may not have flood insurance since parts of the area are not located in a federally-designated flood zone, and therefore was not a requirement.

While business interruption insurance can be costly, with policies ranging from $750 to $10,000, flood damage can be costlier. The National Flood Insurance Program reports that one inch of water can cause $20,000-worth of damage.

It may be expensive, but business interruption coverage could be well worth the investment since the rate of natural disasters is increasing. CNN reports that North America experienced 160 natural disasters in 2016—the highest in a given year since 1980.