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Hurricane Season and Small Businesses: The Right Insurance Coverage Can Provide a Financial Safety Net

Dan Rafter
Dan Rafter
Contributor at insuranceQuotes.com

This year's hurricane season is expected to be challenging, so business owners need to examine their policies to make sure they'll be able to repair or rebuild following potential storm damage.

Hurricane season runs from June 1 to Nov. 30 every year. And this year's season is expected to be a challenging one, with officials with the National Oceanic and Atmospheric Administration predicting in May that 2020 would probably be a busier-than-normal hurricane season.

Small business owners operating in locations that are likely to be hit by hurricanes? They need to look closely at their small business insurance policies to make sure they can rebuild if their businesses are damaged or destroyed by the high winds and floodwaters that come with the most severe storms.

Expecting a difficult season

According to the National Oceanic and Atmospheric Administration, there are typically 12 named storms – those that have winds of at least 39 miles an hour – each year. In the average year, six of these storms become hurricanes that have winds of at least 74 miles an hour.

This year, forecasters with the administration predict that the United States will see 13 to 19 named storms, with six to 10 of them becoming hurricanes.

If your business operates in an area prone to hurricanes, then, you need to take action today to make sure you have enough insurance coverage to reopen your small business should a natural disaster destroy or damage your property.

Don't ignore this step. FEMA says that almost 40% of small businesses don't reopen following a disaster. As the agency says, just a few inches of floodwater can cause tens of thousands of dollars of damage to your business.

The protection you need

The key to surviving a hurricane or other natural disaster is to make sure that your business has the proper insurance coverage.

Look over your existing commercial insurance policy to make sure it will cover the type of damage your business might sustain during a natural disaster. If your business is facing a hurricane, this might mean a payout should high winds damage or destroy your commercial property.

High winds aren't the only challenge that hurricanes bring. There's also water damage. Flooding can cause as much if not more damage to your business than can high winds.

That's why you absolutely need flood insurance from the National Flood Insurance Program operated by FEMA. The program is designed to provide a financial safety net for homeowners and business owners whose properties are located in recognized flood plains. These policies pay out should floodwaters damage your business.

Buying flood insurance, though, isn't like buying traditional commercial property insurance. You can only purchase it through an insurance agent or insurer that participates in the National Flood Insurance Program.

Fortunately, most insurers are part of the program. If your insurer isn't, call the National Flood Insurance Program Referral Call Center at 1-800-427-4661 for a referral to a company that offers flood insurance.

Flood insurance doesn't cover all the damage that your business might sustain during a hurricane. The high winds of a hurricane can also damage or destroy your commercial property. Protection for this should be included in your business insurance package.

If you're unsure if your property insurance offers enough coverage for wind damage, call your insurer today. Find out exactly how much coverage your policy contains and if there are any exclusions that could void this coverage.

Business interruption insurance

You should also purchase business interruption insurance to help protect your property during hurricane season. This insurance pays out if a natural disaster forces you to shut your doors as you rebuild. The goal of this coverage is to replace the money you’re losing when your business is closed and the expenses you might generate if you must rent a temporary space to operate your shop.

Before a hurricane strikes, call your insurer to see if your business insurance policy already includes business interruption insurance. If it does, find out how much of a payout your policy provides. If your business isn’t covered by this insurance, sign up for it before a hurricane roars in.

Be aware, though, that business interruption insurance doesn't cover every event that can close a business. For instance, most insurers aren't paying out to business owners that have shut down during the COVID-19 pandemic because this insurance usually specifically excludes coverage for viruses.

Those events that are covered by a typical business interruption policy include fire, wind, theft, lightning and falling objects. Wind is a key coverage if you are worried about hurricanes.

Say the winds from a hurricane tear apart your shop's roof, forcing you to close your business while you make repairs. Business interruption insurance would help cover the income you lose while your business is shut down. This insurance would also cover the extra expenses you might incur if you must temporarily move your business to a new location because of the wind damage.

Business interruption insurance will not cover the cost of repairing your roof. You'd rely instead on the property coverage included in your business owners' insurance policy to cover these costs.

Factors to consider with taking out business interruption insurance

You’ll have to answer several big questions when you're choosing business interruption coverage. One of the biggest? How much coverage do you need?

Determining this is an inexact science, but you want to make sure you have enough coverage so that you can stay in business while you take the steps necessary to reopen.

Calculate how much income your business produces on a typical day. Then try to determine how long it might take you to reopen after a hurricane, realizing that this estimate is only that, an estimate. Make sure your business interruption insurance provides enough coverage, then, to replicate at least a good portion of your business's daily revenue for a long enough period to get your shop's doors open again.

If you plan on moving your business to a temporary location while you rebuild, include extra coverage to cover the cost of renting this new space.

It's important to understand, too, your business interruption policy's restoration period. This is the number of months that your policy will help pay for lost income and added expenses while you work to reopen your business.

Business interruption policies don't pay out forever. They stop paying out once that restoration period ends. Policies vary, but Allstate Insurance says that the restoration period usually lasts as long as 12 months. This means that if your business isn't back open during these months, your insurance policy's payments will end, even if your business still isn't generating income.

Make sure when you schedule repairs that the work will be done before the restoration period ends. And if you worry that a hurricane will devastate your building? Only sign up for a business interruption policy that has a longer restoration period. This will give you the time you need to restore your business while still benefiting from a financial safety net.

Preparing to file a claim

If you know that a hurricane is coming, take the necessary steps to make the claims process a smooth one.

First, gather your important business documents to make sure you have easy access to them when it's time to file a claim. This includes your tax records, financial statements and any legal documents relating to your small business. You don't want to be scrambling to find these documents when you're ready to file a claim.

Before the hurricane hits, take a workplace inventory listing your business's physical assets. Take photos of your business's exterior and interior, including important equipment and inventory. This will help you prove your losses when filing your claim.

Hurricane season is a stressful time for business owners whose companies are in the path of potentially deadly storms. With the right insurance coverage, though, you can greatly increase the odds that you’ll be able to reopen even after a hurricane hits.

Before disaster strikes, meet with your insurance agent to review your business insurance policy. Make sure that you have enough coverage to survive those stressful months when you might be rebuilding your business.

Image Credit: Darwin Brandis / Getty Images
Dan Rafter
Dan Rafter
business.com Member
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Dan Rafter has more than 20 years experience writing about financial and business issues including residential and commercial real estate, insurance, credit cards, credit scoring, mortgage lending and personal finance. He has written for such publications as the Washington Post and Chicago Tribune, and is a frequent contributor to InsuranceQuotes.com, which publishes in-depth studies, data and analysis related to auto, home, health, life and business insurance.