Small-business owners dealing with damage caused by Hurricane Gustav or Tropical Storm Fay -- or this summer's Midwest flooding or California wildfires -- probably are feeling some regret because they didn't have adequate insurance coverage. And so the cost of salvaging a building or the business itself is falling squarely on them.
Many small businesses are underinsured, either in dollar terms or in the kinds of policies they've taken out. Sometimes the culprit is ignorance -- an owner may not realize that a policy doesn't cover certain hazards. But in this difficult economic climate, the problem may be that an owner decides to forgo the cost of insurance because of cash flow problems.
Insurance is always a gamble, whether it's for a business or a home. An owner needs to weigh the chances of a disaster striking against the cost of coverage or the cost of having to rebuild.
Some communities flooded this summer when the Mississippi River spilled over its banks were considered far enough from the river to be safe, noted Mike Barry, senior vice president for media relations at the Insurance Information Institute, a New York-based industry group.
The odds are that some business owners never took out flood insurance -- which must be purchased separately from standard property coverage -- because they never imagined they'd be washed out.
Too often, Barry said, owners regard insuring against a disaster "as money going out with a very indefinite return on investment. It's seen as an unnecessary expense by some."
A big mistake business owners can make is to take out a policy that covers property damage from forces such as wind, rain, hail and fire, and assume that's all they need.
They'd be better off with a business owner's policy, which includes property coverage and, perhaps even more important in the event of a disaster, business interruption insurance.
A business owner's policy costs more than a standard property policy, but that business interruption insurance can save a company from going under.
Business interruption insurance can cover a company's operating expenses and lost profit if the business is shut down for an extended period. That can include salaries and employee benefits, rent and line-of-credit payments. And it doesn't have to be a natural disaster that shuts down the business; even losses stemming from a power outage can be covered.
