There are many factors to consider as you contemplate adding or removing terrorism coverage from your commercial insurance policy. Some of these factors involve your specific location and the likelihood of a terrorist act being committed there, but there are other factors at play, as well. The first step is to understand exactly what terrorism coverage is and then decide if it’s right for your business.
Understanding Terrorism Coverage
Terrorism covers damage to your property or losses to your business that occur as the result of terrorist acts. The Treasury Department certifies events as the result of terrorism or not for insurance purposes. Across the country, around 60 percent of businesses have terrorism coverage.
Changes in Terrorism Coverage Post-9/11
There have been significant changes in terrorism insurance coverage since 9/11. Prior to the terrorist attacks of that day, most insurance companies include terrorism coverage with no added premium, or for a small charge. In November of 2002, Congress enacted the Terrorism Risk Insurance Act. In this act, rules are outlined for insurance coverage related to terrorist acts.
Since then, insurance companies have begun to add risk assessments for terror. The risk assessment is largely decided by location. A business in a major urban area are considered a higher risk and thus their rates for this coverage are higher. For businesses in lower risk areas, yearly premiums can be as little as $25.
How the Treasury determines terrorist events
There are several criteria that must be met for the Treasury to determine an event was the result of terrorism. First, the total insured damages must be more than $5 million. Second, the incident must be committed by a person or group as part of an effort to coerce American citizens or to influence the policy of the U.S. government by coercion.
Is Terrorism Coverage Worth it For Your Business?
Now that you understand the basics of this coverage, it’s up to you to decide if it’s worth it. There are a wide range of factors that you’ll use to determine if this coverage is wise. First, consider your location. If you’re in a small town then your need for this coverage is likely much lower than a company located in New York City.
Consider the Cost
Cost is another issue, though it will be tied to your location. As mentioned above, in a small town you might pay as little as $25 for an entire year’s worth of coverage. In this case, many businesses elect to add it since the cost is so low. On the other hand, a company in Los Angeles may pay considerably more, and may decide at the end of the day that the risk doesn’t outweigh the cost.
What’s Covered and Not Covered by Terrorist Coverage
You’ll need to read the specifics of your policy, but generally speaking, terrorism insurance doesn’t cover nuclear attacks, biological attacks, or acts of war.
As with any type of coverage, the key to deciding if you need to add terrorism insurance comes down to a simple risk assessment. What do you stand to gain if you have the coverage and you need it, and what you stand to lose if you need it and don’t have it?