For those of you who are in a dealership trade or manufacturing trade, take a minute think about each of your locations as an ATM machine that spits out a certain amount of dollars every single day. These dollars are used to pay for expenses like employee salaries, rent or mortgage payments, accounts payable, advertising, and anything that is not spent is profit that you get to keep in your pocket.
Most insurance policies will rebuild your ATM machine if it is damaged or if it burns down, but many owners fail to think about insuring the dollars that get pumped out of the machine each day. Without that steady stream of income, where will the money come from to pay the employee’s salaries while you are rebuilding?
Business income coverage is supremely important to businesses like grocery stores, auto dealerships, machine shops, and building material dealers – types of businesses that have a heavy revenue burden at the business location. In contrast, specialized contractors like plumbers, HVAC, and electrical contractors for example don’t need this coverage since they drive most of their income from jobsite’s away from the insured building. If a machine shop burns down, they are effectively out of business. But if an office of a plumbing contractor burns down, they can operate out of their truck until they can find a new location to set up.
There are some key things to think about when evaluating the business income needs of your business.
First, what limit do you need?
It’s important to take a look at your P&L and Balance Sheet when making this decision. If all of your revenue is brought in through a retail or manufacturing location then you should consider unlimited coverage or a limit of “actual loss sustained,” to insure you’re made whole after a loss.
Secondly, what is your deductible or coinsurance cost?
Each carrier treats their business income policy a little bit different. By reading the fine print, you will find that some carriers add endorsements to this policy that states you may be liable for a certain portion of the claim via a deductible or coinsurance.
Third, if you have multiple buildings or locations, does the policy blanket the coverage?
Blanketing means that each building is covered under a single limit. Blanketing can be by location, with all buildings at one address under one blanket, or it can have a blanket on the entire policy with all locations included. In some instances, you will find very small limits on buildings that should have a bulk of the limit applied.
In summary, many generic policies will have a small business income limit tied to their property coverages, but it’s certainly a smart move to ask for more. The cost for blanket actual loss coverage is a fraction of the total property insurance cost and its benefits far outweigh the investment. In my opinion, insure the money machine and the money it produces.