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Do I Need Terrorism Insurance For My Business?

Terrorism insurance is provided by a public or private risk-sharing partnership. It gives the government and insurers the responsibility of sharing losses if there is a terrorist attack. This coverage is offered as a special add-on feature or endorsement to commercial property insurance. 

If there is a terrorist attack, a regular business policy will not cover losses resulting from terrorism. In 2002, Congress implemented the Terrorism Risk Insurance Act. It ensures that businesses will have the necessary resources to recover in the event of a terrorist attack. As part of TRIA, all U.S. insurance companies offering property and casualty coverage are required to offer terrorism insurance.

What Does Terrorism Insurance Cover?

Damaged equipment, furnishings and buildings are covered under a commercial terrorism policy. The policy may cover other losses associated with the terrorist attack. For example, it may cover monetary losses from business interruption. If there are liability claims against a business after a terrorist attack, the policy may cover those as well. 

What Does Terrorism Insurance Exclude?

In some states, fire damage is excluded. Biological, nuclear, radiological and chemical attacks are typically excluded. However, they may be included for worker's compensation, life and health coverage. Damages may also be caused by online attacks. For example, an online attack may damage a computer network and the actual devices. Terrorism insurance does not usually cover these incidents. However, cyber liability insurance would cover the cost of new equipment and the cost of setting up a new network.

How Terrorism Insurance Works

If the U.S. Department of Treasury classifies an event as a terrorist attack, the ensuing losses are covered. They are not covered without this official declaration. To be considered a terrorist attack, an act must be violent and have the intent to coerce government officials or civilians. Also, property and casualty losses must exceed $5 million, and damage costs must exceed $100 million. This applies to both foreign and domestic acts of terror.

Terrorism Insurance Purchasing Considerations

According to recent estimates, approximately 60 percent of businesses in the United States have terrorism coverage. These are the three main buying considerations.

1. Business Location

Train stations, airports and large commercial urban centers are more likely to be targeted by terrorists. Residential and rural areas are less likely to be targeted. For example, an accounting office in a high-rise building in Chicago would be a more likely target than an accounting office in a small building located in one of Chicago's suburbs.

2. Business Type

Certain industries face higher risks than others. For example, businesses in the energy sector are more likely to be targeted for terrorist attacks than businesses in the retail industry.

3. Cost

Premiums are based on coverage amounts, and those amounts are calculated based on each increment of $1 million insured. The average rates per million are $19 to $49. Premiums also depend somewhat on the size of the business. For example, a small business may pay $57 to cover $3 million. As a rule, terrorism insurance makes up about 5 percent or less of a company's annual property insurance expenses. 

Americans have seen that attacks can happen in places such as college campuses, shopping districts, sporting events and even night clubs. These lessons have also shown business owners that no commercial building is truly safe. To learn more about terrorism risk assessment and coverage options, discuss concerns with an agent.

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