The Cost of Fire: Why You Should Protect your Business

First the raw numbers: In 2006, 1.6 million fires caused $11.3 billion worth of damages to businesses. Consider this: a fire is more than a minor problem for a business, any disruption of goods or services can spell devastation. Will you really be able to financially recover from a loss due to a fire if you are not properly insured?

Most property policies cover loss from fires, but be sure if the amount is enough. Since policies are usually written in broad terms, there are bound to be limits applied, so if your business has higher fire risks, then you might want to consider adding a specific fire policy on top of the more general property policy. Ask your insurance agent to give you a risk assessment.

Your business is not just a building of brick and mortar. It is all the items contained inside, your equipment, your ideas, your raw materials. It is the livelihood for all of your employees.

Not insuring your business against basic risks, including fire is not a smart business move, but neither is underinsuring it to save a few bucks in the present. Insurance is meant to protect for the future, but if you have skimped, then it will not really do much for protection. Make sure that you cover the total worth of your business, including future profit projections. Have the business reappraised each year before renewing your policy, and either add or subtract from your insurance needs as necessary.

Be aware of how the coverage of your policies fire protection pays out in the event of a loss. Most plans pay out with actual cash value (ACV) rather than replacement cost value. Is that going to be enough? ACV pays out minus the amount of depreciation for the lost items. Some items have a long life, usually, but would be hugely expensive to replace in the event of a fire. If your business relies on such expensive equipment for its very existence, then you might want to make sure that your policy will adequately cover the replacement cost.

A fire will of course interrupt your business operation, but will this interruption be a small problem, or will it destroy the business?

Consider an additional policy which would cover the cost of the closure as well as possible relocation costs if that becomes necessary. This policy is called a business interruption policy, and can save your business from ruin.

If you do need to rebuild, you need to consider the expense of being code compliant. If your building is an older one, it is a possibility that you were grandfathered in and did not have to comply with the newer standards. Your new construction will however have to be built to code, and that amount will probably not be covered on your insurance.

This is a separate policy of its own, or one written as a rider to an existing policy.

Each business has its own risks and insurance needs. Keeping up with safety and maintenance is important, just as yearly appraisals and insurance need reviews. Fires and other disasters can spell the end of a business if there is not adequate protection.

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