Commercial Terrorism Insurance

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History of Terrorism Insurance

Since the terrible day of September 11, 2001, the word terrorism has taken on a whole new emotional context. While it wasn’t the first act of terrorism on American soil, it was one of the most memorable. It caused a lot of insurance companies a lot of money and therefore made them realize they could not afford to insure acts of terrorism due to their catastrophic nature. At the time, Terrorism insurance was included on almost every policy for no charge. Terrorism insurance was then revamped and charged for, to make sure that if there were an act of terrorism, the insurance companies would get help from the Federal Government if it was necessary. But what is considered an act of terrorism?

Enter the Terrorism Risk Insurance Act of 2002 which defines an act of terrorism to be any kind of violent act to life, property, or the United States. Sometimes it can also apply outside of the United States if an aircraft, watercraft, or any transporting vessel is used, or if it impacts the United States population or policies. Sometimes this can be a gray area, but an important piece of this to note is that in order for it to be considered a certified act of terrorism, the President of the United States must declare it to be one. However, in 2015, the need to include domestic terrorism was realized so the definition of “acting on behalf of any foreign person or foreign interest” was added.

What Does Terrorism Insurance Cover?

Terrorism insurance is designed to insure Property Damage and Loss of Income due to a certified act of terrorism committed in the United States. It is usually added by endorsement to your existing General Liability, Commercial Package, or BOP policy. Often, insurance companies will exclude terrorism coverage, and you will have to request it, or opt-in and pay an extra premium. However, it is now an option to purchase a stand-alone policy, which can be a good option if your business is international.

What are the Exclusions Within Terrorism Insurance?

If an act is committed and it is not deemed to be a certified act of terrorism, this is excluded. However, some policies will exclude this with specific parameters. It is critical that you know what your policy states if this is a coverage you are concerned about. Also, if the President of the United States determines that an act of terrorism is not that and is an act of war, then your policy would not offer coverage for this as it is excluded. There is currently no coverage available for damage resulting from a war, except Workers Compensation. Additionally, nuclear, radiological, biological, and chemical acts may be excluded as well. As always, be sure to carefully read your policy, so you know exactly what is included and excluded.

Does Your Business Need Terrorism Insurance?

While it is always recommended to cover your business as best as possible, there are some factors to consider when determining if your business needs Terrorism insurance.

  • Type of Business – Depending on the type of industry your business is in, the likelihood of it being targeted by a certified act of terrorism may be higher or lower. Do research to determine which is the case for your business. For example, a retail shop may have a low risk of being targeted, while a company dealing with energy and green materials may be higher.
  • Policy Premium – As a business owner, you are always going to look at the bottom dollar. Terrorism insurance can be a little high due to the possible catastrophic nature of future claims. When looking at it as an endorsement on your existing policy, you can expect it to be about 3 to 6 percent of your total premium. When weighing the coverage versus the cost; however, it doesn’t seem to be too extreme.
  • Business Location – Location is vital for any business, but when it comes to terrorism, some areas are more prone to being attacked. Some of these may include locations near airports, train stations, bus stations, or any other transportation type businesses. Additionally, if your business is close to areas with unusually high volumes of people, like a big city, your risk may be higher than that of a business in a suburban area.

Is Stand-Alone Terrorism Insurance Enough?

It is essential to note that there will be differences between a stand-alone insurance policy versus adding Terrorism insurance by endorsement to your General Liability or Commercial Package policy. A stand-alone policy will most likely cost more money and have broader coverage. Often, it will provide coverage for outside of the United States as well. If your business only operates in the United States, an endorsement on your existing policy may be enough. Be sure to discuss your business thoroughly with your agent before deciding which option is best for you.

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