Posted on: September 7, 2017 by Chuck Krugh, CFP
On top of the terrible human toll on individuals inflicted by disasters such as Hurricane Harvey – currently affecting millions in Texas and Louisiana – disasters take a terrible toll on small businesses as well: According to data from the Federal Emergency Management Agency (FEMA), some 40 percent of all small businesses shuttered by a disaster never reopen their doors. Of those that do, 25 percent of them close their doors within a year.
Medical practices are no different. This piece is for every physician or dentist in private practice who wants to protect his or her valuable practice against the risk of disaster.
Most practice owners understand that standard commercial insurance doesn’t cover flood damage. For that, most businesses consider taking out a National Flood Insurance Program policy. Base policies include up to $500,000 in coverage for the building, if you own the building, and up to $500,000 in contents. Deductible options are available up to $50,000. If you need additional coverage, you can generally buy excess coverage.
The average commercial flood insurance claim is $85,000, according to FEMA officials. Many businesses experience direct flooding costs that are much higher. If you have expensive medical equipment in your building that’s destroyed by floodwaters, your damages can easily go higher than that – and even exceed the base NFIP policy.
Doctors should know that flood insurance policies have two separate deductibles for property and contents. They aren’t combined. This means higher potential out-of-pocket costs.
Another huge risk for small medical practices is business interruption. If your location is knocked out by disaster, it could take weeks to get up and running again.
Meanwhile, you and your business still have fixed costs to pay:
Most small businesses quickly run out of available cash to pay these expenses and still reopen. Meanwhile, patients rendered homeless by the disaster move out of town, or lose their health insurance as their own employers shut their doors, and thereby affect your practice and your revenues even after you open.
Medical practices should seriously consider business interruption coverage. This valuable coverage kicks in if your business or practice experiences direct damage from a flood or other covered peril and you are forced to shut down your operations.
This coverage can help you meet your basic expenses, pay salaries of key individuals, and preserve your cash reserves so that your practice can survive the critical year or two after the disaster.
In some cases, business interruption insurance can help you relocate your office. BI policies may pay reasonable costs of moving to and leasing a temporary site to continue practicing.
Be sure to work closely with your agent to ensure you are protected against a wide array of potential hazards. Some business owners in the path of Tropical Storm Sandy found to their chagrin that their business interruption policies were too narrow and didn’t protect them against indirect causes of interruption, such as the loss of power and utility services to their locations. So business interruption planning and insurance requires a good deal of attention to detail and close coordination of your different types of insurance coverage.
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Based in San Clemente, California, President and CEO Charles Krugh is a Certified Financial Planner with more than 15 years of experience working with people in the medical industry.
Call us toll free at 866-899-7318 to speak to one of our disability insurance professionals.