Loss of Income – Loss of Power
David George

Loss of income coverage is a coverage that pays a business owners for their revenue loss during a covered peril. For instance, a manufacturer that normally produces a product that has a fire, can receive revenue for the financial impact during their time of rebuilding. Obviously though you must first purchase the coverage. Many policies, such as Business Owners Policies (BOP’s) include the coverage automatically. The policy will outline the coverage. If the coverage isn’t offered automatically, you do need to purchase an acceptable limit that is appropriate for your business. This coverage can be quite expensive, but it’s critical for the continuation of most businesses.

Loss of income typically has a standard 72 hour waiting period. This simply means that a covered loss must create a situation where your not able to operate for 3 consecutive days. Coverage then kicks in and will begin paying for your financial impact. Now please note, I did say it must be a covered loss. During our recent ice storm there was a widespread power loss for many square miles. Most policies exclude “off premises power failure”, meaning a loss of power that occurs elsewhere is considered outside the realm of coverage. An additional endorsement is sometimes available to extend coverage beyond your premises, but unfortunately not all companies allow this coverage.

Over the past five years The Thompson Group has written more of a coverage called “Equipment Breakdown”. This specific coverage is needed by many companies because of their dependence upon machinery, computer systems or mechanical systems. The coverage broadens the property policy to include things such as arching of electricity, surging of current, refrigeration lines rupturing, and even losses from dust or dirt into circuitry can sometimes be covered.

As you can see, the coverage is unique, difficult and complex. Give us a call if you have any questions relative to your current coverage or what the cost would be to add additional coverages.

“Why the &^%$ do I have to carry $1 million on that building?”

If you’re like most insureds, you are always wondering why you’re insuring a building for $1 million that has a market value of $500,000. The purpose of this ezine is to help answer that question and help you better understand the many ways you can insure your buildings.

First of all, if your in the situation described above, chances are your current insurance provider is using a form of insurance called replacement cost that is basically an agreement, between the insured and the carrier, that insurance will be carried sufficient to replace the structure if destroyed by a covered peril (fire, lightening, wind, etc). The benefit of insuring your buildings this way is that in the event of a partial loss, the insurance company will replace the damaged portion of your building with kind, like and quality materials, and your only out of pocket expense will be your deductible. This is the way that most property is insured in the Midwest.

Again referring to the example above, it is possible to insure a $500,000 building for $500,000. This option is called the Actual Cash Value option and allows for a much lower amount of coverage on your structure. The downside of this option is that in the event of a partial loss, the insurance company will depreciate your building and thus pay you only a portion of your loss after deductible. Depending the age and condition of your building, you could pay a sizeable amount of the loss in addition to your deductible.

The 3rd most common way to insured a building is using a form called Functional Valuation. Functional Valuation allows an insured to insure a structure for an amount that would allow for the “functional replacement” of a structure. For example, let’s assume that your main office is in an old brick building built in 1920 that is 10,000 square feet. The replacement cost of that structure might be $1 million, but if the building were damaged beyond repair, would you replace it with another 10,000 square foot building or would you maybe build a nice frame structure? The main benefit of this option is that it allows partial loss settlements to be figured without depreciation, but the products used to replace or repair the damaged portion of the building will be the functional equivalent to the damaged portion of the building. The best example of this would be the old oak beams that we would probably find in the 1920’s million-dollar building mentioned above. In the event of a loss, chances are great under a functional valuation that the oak beam would be replaced with another lower cost, but functional wood beam.

Each option has benefits and costs, but now you know you can insure that building for something more than just replacement costs. If you have any questions, comments, or concerns please contact your current insurance agent. If they are unable or unwilling to help you, contact The Thompson Group located in beautiful Parker City, Indiana at 800.886.6655. We would be happy to review with you your many options when it comes to not only property insurance, but also your entire also insurance program.

Welcome to the "My Guy" newsletter. The purpose of this monthly email is to allow The Thompson Group (located in beautiful Parker City, Indiana!) to help convey basic information about your commercial insurance program. We try and keep this light, interesting, and timely. So, grab a cup of Joe and enjoy the read.

This month's topic – Sub Contractors

Do you use sub contractors?

Chances are if you are a business owner or in a decision making position for a business, you have hired a subcontractor to provide some service for you in the last 30 days. But hold on; are they a sub contractor or an employee? Oh come on, you say…. I hired this person to fix my roof! Ok, that’s probably a subcontractor, but there are some gray areas that you must be aware of when dealing with “subs”.

First of all let’s deal with the issue of “construction trade subcontractors”. If you are in the construction business, you’re exposure to “subs” occurs on a daily basis and we recommend the following three steps:

1. Always maintain a current certificate of insurance on file. Create some type of suspense system that allows for YOU to contact the subs insurance provider annually to get an updated certificate of insurance.

2. Always try and have a simple hold harmless contract in place for every subcontractor you use. The Thompson Group has a sample that we can provide for review but recommend that your attorney review and update before you implement.

3. Request to be added as an “additional insured” to your sub contractor’s general liability coverage. This is usually at no cost to either party, but provides an additional layer of coverage protecting your coverage.

4. Make sure that your subcontractors have workers compensation or has filed the Indiana Workers Compensation “Certificate of Exemption” For the rules about this form and the form itself click here www.

If your company is not in the construction trades, we recommend you have at a minimum a certificate of insurance on file. Why? As we know, both your general liability and workers compensation coverage’s are auditable. If at audit time it is not clear-cut that this “sub” was not an employee, this exposure will be charged to you as a covered exposure. The certificate will prove that coverage was in place for this entity and in most cases preclude any additional charges.

To learn more about the issue of subcontractors visit the following link:

http://www.in.gov/dor/taxforms/pdfs/wcfrm.pdf  - A great quick check as to who is generally and employee and who is generally a sub contractor. This page also includes the Independent Contractor Affidavit of Exemption form.

In the event that you want to use a subcontractor, but they are not carrying insurance, please feel free to refer them to use. We’ll meet with them and guide them through the insurance process. In the time being though, refrain from using them, until they are able to provide you with the necessary certificate of insurance.

As always, if you have further questions, be sure to give us a call and we’ll be happy to assist!

November - 2004

This month's topic - Loss of Income Coverage

If your business had a fire tomorrow, what would you do? If you are like most business owners, you would probably contact your insurance agent and pray that you were adequately insured. Here's the point of this newsletter: MOST BUSINESSES FAIL NOT BECAUSE OF THE FIRE, BUT BECAUSE OF THEIR INABILITY TO CONTINUE AFTER A FIRE.

One thing that we would recommend you to do right now is check on your "loss of income" limit of liability. In essence this coverage will help you continue to receive an income while your business is unable to operate.

How much is your current coverage? To find out, pull out your commercial insurance policy and look at your property declarations. Look for the item "Loss of Income" and see what limit you have. There are several ways this coverage can be written, but it is most commonly written on a "monthly limitation" basis. On the bottom of your declarations page you might see a 1/3, ¼, or 1/6. What that fraction indicates is the number of months this policy will pay. For example if your limit is $120,000 and you have a 1/6 monthly limit, the policy will pay up to $20,000 per month for up to 6 months.

Another way that Loss of Income can be written is on "ALS", or on an Actual Loss Sustained basis. "ALS" isn't always available for business owners due to the type of business that they are in, but it is the best way to write the coverage. "ALS" automatically pays the business their actual loss, taking into account fluctuations in revenue, without having to constantly monitor the financials of your business.

Check this limit now, if it is not adequate, call your agent. If they won't call you back, call The Thompson Group 800-886-6655 and one of our commercial insurance experts will be more than happy to visit with you to further explain this coverage.