FEMA reports that 40% of small businesses close after a natural disaster strikes. That’s why they need the right type of insurance. Brandon J. Clapp, an attorney at Swift Currie’s Insurance Coverage practice group, tells Small Business Trends the challenge is to get adequate coverage.
Clapp explains, “Small businesses typically are more vulnerable to natural disasters because most small businesses do not have large amounts of cash on hand to respond to losses caused by natural disasters.” Most of these small businesses don’t have the resources to recover either.
Clapp also says a 2013 study from The American Sustainable Business Council found small businesses lost an average of $3000 dollars a day for every day they were closed after a natural disaster.
How to Protect Your Business
Scouring through your existing policies with industry and legal experts to see what you’re covered for is the first step to covering your bases. Clapp says that small businesses should kick the tires to find the policies made to cover their needs.
“Not all businesses face the same risks or have the same tolerances for those risks,” he says, adding that a review should cover property, perils, deductibles, limits and exclusions.
There’s more to this part of the process than just getting good coverage.
“Insurance can be expensive so it is important for small business owners to accurately assess their potential risk exposure to ensure they are not paying for insurance they do not need.”
Business Insurance for Natural Disasters
It should be no surprise there’s lots to sort through once you consider all the different coverages available to small businesses. The big category is the variety of products under the header of Property Insurance Policies.
It’s important to note here that flood coverage is often excluded. You’ll more often than not need a dedicated policy for that.
Insurance For Buildings and Property
You should have a Physical Loss or Property Damage Policy. This is one of the bigger ones since it covers physical loss or damage that includes raw materials, inventory, equipment and buildings.
The money to rebuild, replace or repair what’s been damaged by any natural disasters is included.
Insurance for Generators, Cleanup and Covering Lost Profits
After a hurricane or tornado there’s a lot of debris to be removed and that’s why you should have Debris Removal Coverage. It’s common and you’ll find it with most Property Insurance policies.
Like the name suggests, Extra Expense Coverage, will cover your business for those extra expenses that go above and beyond the cost of operating after a natural disaster strikes. Examples include security guards to prevent looting and generators when electricity is down for some time after a storm.
Business Interruption Coverage is the one that helps a lot of small businesses stay afloat after a flood, hurricane or tornado strikes. As you might expect, there is a waiting period that’s usually 72 hours before coverage starts. This coverage is designed to cover lost income and profits.
There are some other options to choose from as well. These cover situations like the business you lose when authorities prevent you from entering your business and even certain policies that will let you buy cell phones for your employees when utilities and telecommunications are down.
Clapp offers some good advice to get you started.
“An entrepreneur who works out of his home will have different needs than a homebuilder or retailer,” he says. “As a general rule, the more assets the business owns or uses in its business, the more insurance it will likely need to cover those assets in the event of a loss. For example, a business which does not use much equipment or maintain an inventory will have different needs than a business that owns a fleet of heavy equipment or maintains a large inventory.”
Related reading: 11 Types of Business Insurance You May Need
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