What You Need to Know About Property, Business Interruption, and Cyber Insurance
The basics of business property insurance, which covers physical assets from threats like fire, vandalism, and storms. But don't assume all risk' means every risk that you might possibly encounter. Floods and earthquakes, for example, are usually excluded unless you buy specific endorsements.
What does property insurance usually cover then?
The building itself (if owned)
Office equipment (computers, furniture, etc.)
Inventory and signage
Processing equipment
Fences and landscaping
Note, if you rent your space and make improvements - say by installing new lighting for example - those permanent changes are considered tenant improvements and betterments, and you'll want coverage for those, too.
Replacement Cost vs. Actual Cash Value
• Replacement Cost: Covers what it would cost to rebuild with similar materials, even if that means spending more than the property's current market value.
• Actual Cash Value: Factors in depreciation, often leaving business owners with less than they need to rebuild.
This distinction matters especially when inflation, building code upgrades, or partial losses come into play.
Business Interruption Insurance:
Lost income
Payroll
Rent or lease payments
But to trigger a business interruption insurance claim, you generally need:
1. Direct physical loss or damage to the property
2. An unavoidable business interruption due to that damage
3. Actual loss of income
It is important to have meticulous recordkeeping because that's what insurers look at when calculating a business interruption claim. It's also recommended to hire a forensic accountant and potentially a coverage attorney. Better yet, get claims preparation coverage built into your policy to help cover those expert fees.
Contingent Business Interruption Insurance: When Your Suppliers Fails You
What happens if you're fine, but your supplier isn't? That's where contingent business interruption insurance coverage comes into play. This coverage isn't automatic - you must ask for it. Your broker should flag it, but savvy business owners should know to bring it up themselves.
Cyber Insurance: The Digital Fire
Cyber insurance often includes:
Data breach response
Identity restoration
Business interruption
Cyber extortion (ransomware)
Crisis communications
Every business, no matter how small, needs cyber insurance, especially if they handle any kind of sensitive digital data: client info, SSNs, credit card numbers, even internal payroll files.
Watch for Pitfalls: Sub-Limits
Not all cyber policies are created equal. Be on the lookout for sub-limits.
Sub-limits: Some policies cap ransomware payouts at $25,000 - far too low for a real- world attack.
Exclusions: Coverage might not apply if the breach originated from an insider or wasn't reported quickly enough.
Retroactive dates: Claims involving older breaches may not be covered.
Ask Questions, Get Advice, Stay Protected. Conduct a risk assessment. Decide what risks to retain or transfer. Consult your broker and, ideally, your attorney.
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
For more information on this and other topics, please contact Kevin via any of the channels listed below:
📧 kevin@kmckernan.com | 📞 718-317-5007