Insurance Coverage: Property Risk in Avionics Business

Commercial property insurance protects your business from loss or loss of use of company property, both tangible (buildings, computers, etc.) and intangible (lost revenue). Property insurance policies can provide coverage for an array of items.

What can be covered? Buildings, office equipment, furnishings and fixtures, mobile equipment, tools, parts, inventory, equipment breakdown, business income, extra expense, among other things. A $1,000 deductible per occurrence is standard.

TExclusions: Losses arising out of wear and tear, nuclear disaster, war, flood, and earthquake are typically not covered (flood and earthquake coverage may be purchased as separate policies). Riots and civil commotion, however, are covered by property policies.

Here are some property coverages available to business owners.

Business Income (Business Interruption)

What is it? If your office building is damaged or destroyed, your moneymaking operations are halted. You lose income. Business income coverage reimburses you for revenue lost during suspension of business operations as a result of a covered loss. More specifically, Business Income coverage includes the net profit the business would have earned had there been no interruption, as well as expenses that continue despite the interruption (i.e. rent, insurance, contracted services, taxes, mortgage payments).

What about payroll? Payroll is included for business owners and managers. It is not automatically included for employees. Coverage for employee payroll can be added by endorsement to retain your most valuable employees.

Deductible: The deductible for Business Income coverage is not monetary – it’s a length of time; for example, 72 hours. Business Interruption coverage does not begin until 72 hours have passed since the loss occurred. For the first three days after a loss occurs, the insured foots the bill.

Example: You own a successful aircraft avionics business, and your workplace is severely damaged in a storm. You’re unable to continue your business operations because of the damage. With Business Income (Business Interruption) coverage, you’d be reimbursed for the net profit (before taxes) that your business would have earned had there been no loss as well as expenses that continue despite the loss (management payroll, rent, etc.).

Considerations for Business Interruption Insurance

Business Interruption Insurance cannot be purchased on its own; it must be added to a Property Insurance policy or included in a Business Owner’s Insurance policy.

Policy limits should be sufficient enough to cover a large amount of time to rebuild the permanent business space. Generally the business must be closed for several days before coverage begins, and it does not pay for those days retroactively.

Price of coverage depends on the risk of disaster to the premises. This may depend on the business location, nature of the business and how easily the business could function at an alternate location on a temporary basis.

Extra Expense

What is it? Extra Expense coverage reimburses you for costs over and above your business’ normal operating expenses that are necessary to keep your business running following a covered loss. Items such as moving costs for setting up shop in a new location, rent for your temporary location, advertising expenses to notify clients of your temporary location, etc. would be covered items under Extra Expense.

Example: In the aircraft avionics business scenario above, you decide you’d like to try to keep the business up and running while your building is being repaired. In order to do this, you’d need to rent a temporary building in which to work, rent basic office equipment as well as tools necessary for aircraft avionics repair and installations, and let your clients know about your temporary location. Extra Expense coverage would reimburse you for these additional expenses incurred to keep your business running at near normal operations.

Insurance experts estimate that Business Interruption Insurance is one of the most, if not the most, valuable coverage available, yet it is often overlooked by business owners. Since Property Insurance only covers the cost of physical loss or damage and contents of a business in the event of a disaster, Business Interruption coverage is invaluable in covering the loss of income while the permanent business location is being repaired. Consult your agent to learn about business continuity resources.

Ordinance or Law Coverage

Why you need it: If your older building suffers a substantial loss, you may have to meet higher construction standards when you rebuild. Over time, municipal codes, laws and ordinances are amended to reflect new benchmarks in building construction. The consequence? The cost to rebuild is greatly increased. Ordinance or Law insurance covers the following: