Business-Interruption InsuranceProtecting your income during temporary business shutdowns 4756

Business-Interruption Insurance

Protecting your income during temporary business shutdowns

By David Wilhite

Every self-storage facility owner should be aware of the need to protect his incomeagainst business interruptions. If you should sustain a direct physical loss from a fireor other covered cause of loss, chances are good that you will also suffer an indirectloss of income. (Indirect losses refer to the lost profits and the fixed expenses thatcontinue month to month, whether your facility is operating or not). You're also likely toincur extra expenses as you attempt to resume your normal business operations.

Business-interruption insurance--specifically, loss-of-income insurance andextra-expense insurance--are designed to minimize your risk in the event of a loss.¹Also known as time-element coverage, business-interruption insurance provides severalimportant benefits:

1) It protects you against reduced sales income (and increased expenses) that resultfrom damage to your buildings or business personal property.

2) It allows you to retain key employees by maintaining their salaries and benefits.

3) It encourages prompt settlement of building and business personal-
property losses.

4) It helps you to retain your tenants.

5) It can restore you to the same position you were in before the loss occurred.

Business-interruption insurance is usually included in most business owners' policiesas a standard endorsement, which might lead you to take it for granted. However, when youconsider that business-interruption losses can easily exceed direct-damage losses, theimportance of this coverage becomes clear. Business-interruption insurance is ofparticular value to self-storage facility owners who sustain a covered loss in that itcompensates you for lost profits based on your operation's projected monthly earnings,thus taking into account the seasonal nature of the market.

When shopping for business- interruption insurance, keep in mind that loss-of-incomeand extra-expense coverages are limited to the actual length of time required to rebuild,repair or replace your damaged buildings or business-personal property. In other words,the amount of financial loss is determined by the length of time it takes to get yourfacility back in business. For loss-of-income coverage to kick in, the suspension of yourbusiness operations must be caused by direct loss or damage as a result of a covered causeof loss. Payment is based upon your operation's past history of seasonal profits andlosses. (Note that, as with all insurance policies, it is your responsibility to makeevery reasonable effort to resume complete or partial operation as soon as possible inorder to minimize loss).

It is a surprising but true fact that a small percentage of self-storage owners chooseto operate without business-interruption insurance, perhaps because the coverage is notrequired by most lending institutions. However, when you consider value of the insurance,and its very reasonable cost, it's difficult to understand why anyone would knowingly skipthis essential coverage.

I strongly recommend that you secure a full 12 months of loss-of-income coverage toprotect yourself against business interruptions. While it may only take three to sixmonths to rebuild your business after a covered loss, you will first be required to removedebris, obtain bids and building permits, and perhaps face ordinance and zoningrequirements prior to starting reconstruction. Since most conventional coverage ends whenrebuilding is complete, ask your insurance agent about an extended period of indemnity.This important enhancement provides for loss of rental income during a specific periodfollowing reconstruction. (While an average retail store or restaurant can begingenerating profits as soon as it is re-opened after a covered loss, self-storagefacilities may take several months to locate enough new tenants before becoming fullyprofitable).

No matter how large or small your self-storage facility may be, securing adequatecoverage is essential for protecting your business and your peace of mind.

1 "Loss of income" refers to the suspension of your business operations bydirect loss or damage as a result of an insured cause of loss. "Extra expense"refers to any extraordinary expenses you incur during the period of restoration that youwould not have incurred had there been no direct physical loss or damage to property. The"period of restoration" begins with the date of direct physical loss or damageresulting from any covered cause of loss.

David Wilhite is the marketing manager of Universal Insurance Facilities Inc.Universal offers a complete package of coverages specifically designed to meet the needsof the self-storage industry, including loss of income, employee dishonesty, comprehensivebusiness liability, hazardous-contents removal and customer storage. For more information,contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (480)970-6240; www.vpico.com/universal.