Are you a business owner? If so, how should you deal with indirect loss?

The owner of a business tries their best to protect their companies property. One way to achieve this is by properly handling threats to your buildings physical assets, such as its equipment, office furniture, etc. However, there is another area of concern and that is addressing indirect loss.

Example: Paul’s Dry Cleaning suffered a minor fire caused by a short-circuited dryer. With the fire brought along a lot of smoke and residue. The dryer could be fixed and cleaned out in just a few days, but the area would take three weeks to thoroughly clean and decontaminate.

In this case, the business owners loss to using his store was greater than the actual damage to the dryer itself. Depending upon the loss and type of business, indirect losses (also known as Time Element losses) may threaten the financial health of your businesses operations as seriously as any direct loss.

What is direct versus indirect loss? – Direct loss is due to tangible direct damage to property. A fire occurs at a warehouse. That means the warehouse has suffered from direct damage. Time element damage or indirect damage is not as easy to understand. It refers to damaged or destroyed property of a business which then must stop operations until the property is properly repaired or replaced.  After the damage on the property is repaired the operations may resume. The amount of the loss is not always dependent on the value of damaged property. Rather, it is related to the impact the loss has on regular operations.

Insurable vs. Business Risk – An indirect loss policy will only cover insurable risks. Insurable risks are those attributable to damage to insured people or property. Losses caused by economic downturns are not insurable, such as business risks.

Here are examples of business risks, which are not eligible for protection under most insurance contracts:

Example 1: A printing plant’s employees go on strike for two months, closing down operations.

Example 2: A local restaurant featuring Australian cuisine loses 80% of its business when customers’ tastes change.

Securing Coverage: If you decide to buy coverage on indirect loss, be sure that it addresses any loss of business income as extra expenses that are created by a direct loss. Getting adequate protection means you’ll have to determine the level of income coverage you may need, the likely length of business interruption you may suffer and the importance of continuing operations. Once you determine your priorities, you can find matching coverage.

Example: An insurance agencies office is severely damaged by a fire. A full set of backup files is kept at another location. The agent will not actually lose any income because of the loss of her office, but she will need to rent temporary replacement space, furniture, equipment, communications services, etc. She will also need to notify all of her clients and insurers and other expenses to maintain her operation while she either reconstructs or finds a new office.

If you are a business owner, you know how much time and money you have invested in your business. Speak with your insurer to be sure that you are taking the proper steps in dealing with both direct and indirect losses.

If you have any questions about your existing policy, are inquiring information about a possible future policy or need further information, please call us at (631) 738-7300 or get a quick quote at

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