In the wake of COVID-19, a new economic climate has emerged. Life’s been put on pause, and so has normality for businesses across America. As we’ve seen a sharp decrease in consumer spending on non-essential goods, many industries are finding themselves in a season of uncertainty.1 Recently passed legislation has allocated over $600 billion to keep these small businesses and their employees afloat with programs such as the Paycheck Protection Program.2
Yet businesses still need their losses covered as much as possible, and navigating insurance policies to find a solution is difficult. Below we’re discussing what type of insurance coverage might help you amidst the current pandemic.
Covering Your Losses: Business Interruption Coverage
If you’ve lost revenue from the pandemic, you’ll want to focus on business interruption insurance. First and foremost, acquire a comprehensive copy of your insurance policy; your policy may or may not cover business interruption losses, and even then, the details widely differ.
What Is Business Interruption Insurance?
General business interruption insurance is an add-on to property insurance, covering losses if a business is unable to use its insured property normally. This coverage is triggered by a “cause of loss,” which should be described in your insurance policy. Typically, this cause of loss must be direct physical damage to your property - such as fire or water damage.3 There are also various subtypes of business interruption insurance that you should look for:
- Business income coverage: This covers a consistent loss of income as a result of business closure.
- Contingent business interruption coverage: This is the same premise as business interruption coverage, but applied to your entire supply chain. For instance, if your supplier’s institution closes due to damage, you would qualify for contingent coverage.
- Civil authority coverage: This covers losses caused by forced business closure by civil authority. In this case, this is most applicable to state legislatures closing non-essential businesses. This policy also usually requires some form of physical damage.4
Does Business Interruption Insurance Cover COVID-19 Losses?
Unfortunately, many insurers are hesitant to apply business interruption coverage to coronavirus-related losses. These rejections occur on the grounds that a pandemic is not considered “physical damage,” and some insurers even explicitly exclude virus outbreaks in their policies.
Still, this doesn’t mean that you shouldn’t file a claim. Some state legislatures have introduced bills that would require insurers to pay business interruption claims related to COVID-19, even if there are virus exclusions.5 See what your insurance policy qualifies as cause of loss, check local legislation and talk to your insurer.
Policies That Protect You From More Losses
It's unlikely that being sued for liability will be a large concern for most small businesses, considering the difficulty of tracking virus contraction. Still, liability lawsuits are a legitimate fear. Liability insurance shields businesses from these potential losses.
The Importance of Liability Insurance
Commercial general liability insurance protects businesses from losses responding to injury or endangerment. Regarding COVID-19, this could manifest in lawsuits accusing employers of not taking enough precautions or exposing employees to the virus.
Nonetheless, be aware that not all liability policies include virus outbreaks. Clauses including outbreaks are most commonly seen in the events and hospitality industry, where they’re most likely to occur. Less applicable, although still worthwhile to note, is professional liability insurance - this prevents losses from accusations of malpractice or negligence.6
This is a trying time for businesses. It’s taxing to both adapt to this new way of life and keep up with the revenue losses that are inevitable for many. If you’re a business owner seeking relief, try to leverage the insurance policies you have in place. Most importantly, however, don’t lose hope if you can’t get coverage. The government is continuously seeking ways to help struggling businesses, and business quarantine measures are being loosened in many areas across the country.
We are a trusted fee-only financial planning and investment advisory firm to small businesses and self-employed professionals in the Akron/Cleveland area and all across the country. Please feel free to give us a call at 330-836-7000 to schedule an introductory conversation and we will partner with you to design a business blueprint and build a solid foundation for a bright financial future. You can also schedule an introductory conversation with us here.
Since 2004, TCM Wealth Advisors has been providing Fee-Only Fiduciary Advice to our small business clients in Northeast Ohio and all across the country.