Business owners often navigate complex insurance policies without fully understanding what they’re buying. If you’re unsure how your business would weather a fire, cyberattack, or supplier shutdown, this article is for you.

Property Insurance: Not Just for Physical Buildings

Jonathan Mayotte of Thornton Powell explains 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.

So, 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

One of the key decisions business owners must make is how they want assets valued in the event of a loss. Mayotte explains two main options for valuing assets:

• 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.

Mayotte emphasizes the risk of being underinsured, especially if your policy includes a coinsurance clause. For example, if your building is worth $1 million, a coinsurance clause in your policy may require you to insure that property at 80%, meaning you’d need at least $800,000 in coverage. If you fail to insure up to that amount, your claim payout can be reduced significantly, even for a partial loss.

Business Interruption Insurance: Keeping the Lights On

Katherine Smith Dedrick of KSD Law LLC emphasizes that business interruption insurance is just as critical as property coverage. Imagine your factory burns down and you can’t make or sell products — business interruption insurance can cover your:

• Lost income
• Payroll
• Rent or lease payments
• Taxes and loan 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

Dedrick stresses the importance of meticulous recordkeeping because that’s what insurers look at when calculating a business interruption claim. She also recommends hiring 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 Supplier Fails You

What happens if you’re fine, but your supplier isn’t? That’s where contingent business interruption insurance coverage comes into play. As Dedrick explains, it’s especially relevant for manufacturers dependent on third parties. But 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

Mayotte argues that 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.

Dedrick adds that many cyber policies include response teams, ready 24/7 to handle breaches. This includes lawyers, forensic experts, and PR professionals. When every minute counts, these teams can save your business from massive reputational and financial harm.

Watch for Pitfalls: Sub-Limits and Exclusions

Not all cyber policies are created equal, however. Mayotte cautions policy seekers to be on the lookout for sub-limits and exclusions:

• 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. Gary Kirshenbaum, Vice President of Alera Group and the Director of Alera Global Trade Risk Management (AGT), recounts a case where voice phishing (not email!) led to a large loss, but the policy only covered email-based fraud.
• Retroactive dates: Claims involving older breaches may not be covered.

Ask Questions, Get Advice, Stay Protected

Every business is unique and so too will be their insurance requirements and needs. However, despite the differences between industries, all business owners can benefit from taking the following steps:

• Conduct a risk assessment
• Decide what risks to retain or transfer
• Consult your broker and, ideally, your attorney

Insurance doesn’t have to be mysterious or boring. With the right approach, you can build an insurance strategy that fits your business and helps you sleep at night. Whether you’re facing a fire, flood, ransomware attack, or just a blown transformer, the right coverage can be the difference between a hiccup and a catastrophe.

To learn more about this topic, view Property/Business Interruption and Cyber Liability. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about risk management and risk analysis.

This article was originally published here.

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