Insurance, in our opinion, is one of the most important contracts you will enter into.
If your asset is damaged or destroyed, does the business want to be in the position where they still owe the debt but no longer have use of the asset? By having the appropriate insurance not only is the value of the asset protected, the loss of income caused by the damage can also be reimbursed. For Example:
The business building or a key piece of equipment is damaged and the cost of reinstatement is insured. While there is some comfort that the value of the asset is covered, it is equally important that the income stream to the business derived from the asset is also protected. Business Interruption Insurance will cover this loss of income. Additionally, Business Interruption can in certain circumstances provide loss of income where the machine is not directly damaged. For example, it can protect disruption caused by utilities, restriction of access, and/or closure by civil or military authority, caused by an insured event.
Suppliers and Customers. What happens to the business if a supplier or customer has a flood or fire, suffers storm damage or the like and cannot operate? With the right Business Interruption insurance in place your business is protected. Trade credit is another form of insurance that may protect the business from financial ruin if a customer defaults.
What it all comes down to is this one simple question: does the business owners/investors want to risk their investment, their life’s work and on-going financial security? The mantra should be to: hope for the best but plan and insure for the worst.
Business Interruption Insurance in particular should not be treated as a business cost, for which you get a tax deduction, but as PROTECTION.