Editor’s note: Insurance Questions answers questions about insurance coverage for equipment rental businesses. Email your insurance questions to firstname.lastname@example.org. Answers are provided by ARA Insurance, Kansas City, Mo. For more information, call 800-821-6580 or visit ARAinsure.com.
Q: How do I protect my business after a loss that temporarily shuts down my business?
A. First, let’s get past semantics. The following terms mean the same thing: business interruption coverage, loss of business income, time element, and use and occupancy. They all mean protection from the loss of income that occurs when a business is shut down due to a fire or other insured loss.
In the event of a major property loss, a company’s business is interrupted and it may take months to return to previous income levels. In fact, shortage of income is usually the largest cost a company faces after such a loss. Business income and extra expense coverage replace net income that would have been earned had the loss not occurred. It also pays continuing normal operating expenses, such as payroll, mortgage, utilities and extra expenses required to get back in business as quickly as possible. Make sure your policy will continue to pay for enough time to rebuild your property — many policies limit the time of business interruption payments to 12 months.
Verify the policy has a high enough limit to accommodate a claim during peak season in your business. For example, a rental store that is closed for a month in the off-season suffers a different loss than being closed during a heavy rental month.
Ask your insurance advisor how your current policy would respond to these losses. Arm yourself with this knowledge before a loss and you will increase your ability to effectively recover.