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Cover your business for interruptions

Published September 17, 2006

Although most small-business owners know they need property and casualty insurance for their premises, many don't realize they need specialized insurance coverage to limit their losses from a disaster.

Perhaps the biggest omission owners make when buying a commercial policy is business-interruption insurance.

"They fail to think about what would happen if their business couldn't open again," said Loretta Worters, vice president for communications of the Insurance Information Institute, a New York trade group.

Worters noted that business-interruption insurance should be part of a company's business plan, the blueprint needed for any kind of loan or financing. But even the many owners who fund their companies themselves should buy this type of insurance - or they could see their hard work and dreams become a casualty of a fire, flood, earthquake or storm.

Business-interruption insurance covers profits that are lost and expenses that continue to be incurred when a company is forced to shut down by a disaster, or even by an event such as an extended power outage. Policies typically have a 48-hour waiting period before coverage starts, but, depending on how much coverage a business buys, interruptions up to 360 days can be covered.

Among the expenses that business-interruption insurance covers are salaries, rent and electricity - costs that you need to pay even though you can't operate.

How much business-interruption insurance a company should buy is an individual decision, but it should be considered along with a disaster-recovery plan. If you are certain you could quickly move your operations to another site and keep working, you might not want to buy the maximum amount available. But disasters like the Sept. 11 attacks and Hurricane Katrina have shown that the unthinkable can happen - companies can be uprooted and put out of commission for months. Without business interruption insurance, many have failed.

"The biggest hazard of all is being shut down," said Carol Chastang, a spokeswoman for the Small Business Administration. "Business-interruption insurance is absolutely vital."

As many companies have learned, property and casualty insurance can have its limits. Damage from flooding is not covered by a typical commercial package; it must be bought separately. The Insurance Information Institute's Web site has a section at that discusses the kinds of insurance, including business interruption insurance and the kinds of policies needed for disaster coverage, that companies should be aware of.

Joyce Rosenberg writes for the Associated Press.

[Last modified September 16, 2006, 20:50:17]

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