Are you a landlord wanting to learn about Business Interruption Insurance in Prince Georges County? You came to the right place! When owning a rental property (or properties), it is essential to consider all possible scenarios, especially those that could interrupt rental income. For instance, the COVID-19 pandemic was an unforeseeable crisis that caused many business owners to consider additional coverage. In addition to the pandemic, things like fires or weather damage can occur unexpectedly. Below, we will discuss the difference between regular insurance and business interruption insurance, the cost of this additional coverage, and whether it makes sense for you and your rental property.
Contents of This Article:
- What Is Business Interruption Insurance?
- What Does It Cover?
- Business Interruption Insurance Costs
- Who Pays for Business Interruption Insurance?
- Do You Need Additional Coverage?
What is Business Interruption Insurance?
Business interruption insurance covers lost income due to unexpected events that disrupt normal operations. It covers the lost income of what would have been earned based on current financial statements. Essentially, it covers what normal insurance doesn’t.
It’s important for landlords and Washington DC property management companies to understand how this type of insurance works. After all, your regular homeowner’s insurance and business insurance will cover the damages themselves, but what about the lost income due to the circumstances that caused the damage? That is where business interruption insurance comes in!
Business Interruption Examples
- Inclement Weather- Windstorms, tornadoes, and rain that cause flooding are a few examples of weather events that could impact the income at your property. These could cause residents to have to temporarily move out while the property gets fixed, resulting in a drop in rent income. Additionally, these weather events could impact your primary place of business, resulting in a loss of other income streams.
- Fire- If a fire damages the property, whether it’s the entire unit or a portion of the unit, business interruption insurance can help cover lost revenue while the property owner completes repairs.
- Vandalism- Serious vandalism that causes the property or office to shut down for temporary fixes is also covered by business interruption insurance. We don’t just mean graffiti or other cosmetic issues but rather damage to exteriors, windows, and security features that are essential to the building’s function.
- Equipment Damages- Major equipment damages or failures, including those involving the HVAC unit or other essential equipment, are covered.
- Civil Authority Ingress or Egress- The COVID-19 pandemic is a perfect example. Anytime mandatory government shutdowns or curfews are in place, insurance kicks in to help cover income loss.
What Does It Cover?
Business interruption insurance helps business owners recover from financial losses resulting from temporary, covered events like those listed above. That said, some of the main costs covered by this type of insurance include the following.
Lost Income- The insurance can compensate for any income your rental business may have earned during the period it cannot operate. Usually, this is based on previous months’ performance.- Fixed Costs- Your insurance coverage may also cover ongoing expenses that continue even if your business isn’t operating.
- Employee Wages- This insurance covers employee payroll expenses, ensuring that it can pay property managers and other employees during the period of interruption.
- Taxes- Some policies may cover certain taxes, like property taxes, that you must pay during the interruption period.
- Loan Payments- If you make monthly loan payments, your insurance coverage may alleviate financial strain during the interruption period.
What Isn’t Covered?
Business interruption insurance doesn’t cover everything. After all, it focuses on the financial losses of a covered disaster–not the actual property damage. As such, it doesn’t cover actual damage or repair costs to property. Instead, a landlord’s homeowner’s policy would cover these types of things.
Business Interruption Insurance Costs
Business interruption insurance is generally sold as an add-on to your existing property and casualty insurance and will usually run concurrently with your existing policy. The cost is calculated by assessing risk unique to the area your property is in.
If your property is in a PG County neighborhood where vandalism is not uncommon, you may have a higher premium. Fortunately, PG County doesn’t commonly have tornadoes, windstorms, or other serious weather-related events, so your premium wouldn’t reflect those concerns. Always check with a licensed insurance agent to ensure you meet all insurance coverage guidelines.
Who Pays for Business Interruption Insurance?
If you choose to add a rider to your insurance, the cost may be split between you and the tenant(s). However, you’ll want a well-written lease that includes this so tenants understand what they’re paying for. Additionally, if you have commercial tenants, you may want to require them to carry their own coverage. In this case, landlords should state that their tenants must include business interruption insurance in their renter’s policy so that each party can fulfill their lease obligations should an emergency occur.
Do You Need Additional Coverage?
Now that you’re briefed, are you still wondering, “Do I really need to purchase this insurance for my rental property?” The answer isn’t black and white. To answer this question, you should analyze your finances, the risk in your associated area, and the cost of insurance. The best thing to ask yourself is, “Would my business survive a prolonged closure in the event of an emergency?”
If you’re still unsure, contact a professional property management company in PG County and let an expert guide you! Our team of dedicated property managers can help you make the best decisions for your rental business. From tenant screening to rent collection, maintenance, and more, we can help! Learn more about our services throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC, today!
