By Mitchell Sharp
Do I have enough coverage? That question frequently is posed to insurance agents. The answer to this question is, it depends. It depends on how much risk a business owner is willing to take. It also depends on what type of industry the business is in and what they do within that industry.
Getting the business owner the lowest price on coverage while fully insuring their business is a slippery slope agents juggle constantly. How an agent deals with this will go a long way toward determining the agent’s success.
Most business owners attempt to scrape by with the bare minimum amount of coverage. Usually that is a simple general liability and workers’ compensation policy. These two policies are required by law in most states. As many agents know, business owners do this in an attempt to save money on premium. But it does come at a cost and the cost can be devastating when an incident occurs. The most damaging coverage that is excluded is usually business loss of income coverage.
Business loss of income coverage is an addition to a commercial property insurance policy. For most small businesses, it can be added for a few hundred dollars. The addition covers loss of income from damage to the building that causes business to slow down or be suspended. A basic example of when this coverage is needed is a fire. In most cases, your client’s general liability or commercial property policy will pay to repair the building, but it will not cover payroll and lost revenues if the business is closed for an extended time.
This is a difficult loss to explain to a business owner - especially when they are rushing an agent through the quoting process. It is also one of the most difficult conversations to have with a business owner after they experience a fire and realize they do not have this coverage. Many times this conversation take place when they realize their business is going to have to close for good. This can be prevented for an addition of just a few hundred dollars in most cases.
When selling a business loss of income policy, it is important to notify your client that business loss of income coverage only kicks in if the loss was a covered loss, which means a loss that was covered by one of the insured’s other policies. For example, if the damage was caused by a flood and the insured does not have flood insurance, the business loss of income policy will not kick in. The same goes for earthquake, hurricane, tornado, data breach or any other covered peril. Again, this can be a difficult conversation to have when selling a policy on the front end, but it can turn someone in to a customer for life when the occurrence happens.
Most policies are written on an Actual Loss Sustained (ALS) basis. This is calculated as what the company would have earned had the loss not occurred, less what is actually did earn. For this reason, it is important for a business to have easy access to payroll figures. Most of the time, the insurance carrier will audit the figures for the past month and the previous year. The quicker they get these figures, the quicker the claim gets paid.
Here are a few things to remember when you are informing your clients about the need for business loss of income coverage. First, tell the client exactly what their general liability and commercial property coverage will and will not cover. You cannot use the actual business name, but if you have a story about a client who did not have this coverage it can help the client realize the severity of the possible peril. I find these stories help immensely to get clients to see the light.
When your client does decide to purchase the policy, you can help them by notifying them of the need to keep accurate and easy to access payroll information. This can speed up the process of getting a claim paid. Finally, you need to let your client know that this policy is active only if the occurrence is a covered peril. If the business is located in an area with the potential for flood, tornado or earthquake, they need this coverage. Having this coverage is not the easiest policy to convince a business owner to purchase, but it is the one coverage business owners appreciate when an incident occurs. This coverage can keep your client’s business open. For the agent, it can give them a customer for life.
Mitchell Sharp is a marketing associate at Insurance Shop LLC. He has experience in all forms of commercial insurance with particular expertise in cyber liability and workers’ compensation. Mitchell may be contacted at email@example.com.
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