It’s that time of the year when the winds pick up speed, the clouds start rolling in and the water level starts to rise. It’s hurricane season. As a manager or building owner of an apartment complex, you prep for these situations. You buy the right types of property insurance, which includes fire, flood, and other damage. You think you have done everything you needed to do to be prepared for a storm.
Then you get the word from the local news station, “Category 4 Hurricane. Must Evacuate.” You pack up your things and leave before the hurricane hits the Greater Houston area. You return to the apartment complex and find multiple trees down, no power, flood damage to every apartment on the first floor, and holes in some of the roofs. Fortunately, your insurance company takes care of all of the property damage.
But what about business operations? Bills must still be paid even though much of the apartment complex is uninhabitable. Your business is temporarily shut down severally, limiting incoming income. Fortunately, there’s insurance for that, it is called Business Interruption Insurance.
Separate Checks
Property insurance policies should cover repairs from storm damage. Your policy might even say that it will cover loss of income. IF NOT, if you don’t see the magic words “Loss Income,” then you need to evaluate a separate business interruption policy to cover the operational loss.
Business interruption insurance provides funds between your business’ regular income and income during a temporary shutdown. Besides the physical damage, there are additional expenses that are related, such as employee income, moving and storage expenses, and even things such as moving into a temporary space. This is coverage designed to keep a business going and operationally help put everything back together. This means your business will not take a potentially devastatingly large financial hit.
Pick One: Profit or Revenue
Business interruption policies determine how much you can recover after a loss. There are a series of requirements and steps that need to happen first before the “loss of income” goes into action. In my next post "Stay Tuned" we'll go into all of the specifics but let's start.
How the loss is calculated can make a HUGE difference in what you are paid.
To determine the earnings that the apartment complex would have made if there wasn’t a temporary shutdown, usually, the insurer will look at the company’s earnings in the past two years. Conveniently, there is a formula for this. This calculation is based on lost profits or revenues. Your carrier will plug information and numbers into fancy formulas, then sprinkle a few accounting methods, and poof, you have your covered loss.
Period of Restoration
“Period of Restoration,” the length of time the policy will pay benefits immediately after the loss. Typically, this period will begin on the first day of the must shut down. It’s to be expected that there will be a “waiting period” in which there will be no coverage.
Usually, this time period will end when the property should be expected to be repaired, rebuilt, or replaced. Determining a reasonable period to rebuild is often a source of disputes between insureds and insurers. Construction projects tend to take longer than originally predicted, which could be out of the policyholder’s control.
If you have questions about an insurance claim or want more information on business interruption insurance, schedule a time to talk by clicking below.
