What is Business Interruption Insurance?

Business interruption insurance is business income coverage. It helps to replace lost business income if you are unable to open your business temporarily due to a loss covered by the policy, such as a catastrophic event or natural disaster. This insurance can save you in an emergency situation. For instance, if a hurricane causes flooding in your business, a business interruption insurance policy covers costs of lost income to your organization until the window gets repaired. In contrast, types of events like power outages caused by storms are not covered with this insurance because it is normally quickly repaired. It enables us to take action in an active emergency situation. Your business income insurance may also cover a civil authority, like a government-mandated closure. This could be something like a city shutting down all businesses due to an outbreak of a dangerous virus and another disease outbreak. Ultimately, it can help you to quickly continue operations once you are able to re-open your business. Some business interruption policies will also help to pay for the costs of establishing a temporary location for the office if your original is not usable. Here is more about business income insurance and how it can help your business in an emergency.

What Does Business Interruption Insurance Cover?

Insurance covering physical damage from an emergency is important. However, it’s just as essential to have expenses and extra expenses covered while your business is out of commission. Most policies will cover the peril of the following expenses:

Lost Net Income

One of the benefits of business interruption insurance is that it can help to cover the cost of lost net income. Business interruption insurance policies will review your finances from previous years and cover your projected lost net income based on your previous profits and losses during any interruption of your business.

Mortgage or Lease Payments

Most businesses have overhead in the form of mortgages or rent for the buildings that they occupy. If your company is put on hold for any reason, not only will business interruption insurance pay for your net losses, but it will cover your mortgage or rent while things are put on hold. This is significant because it can help to protect the business‘ financial stability and financial impacts in the event of a disaster.

Loan Payments

Business loans are common in many entrepreneurs’ journeys, so having your income put on hold can make it difficult to pay those loans back. Having business interruption insurance will keep you from missing any loan payments and help to avoid extra fees and fines.

Routine Bills

Businesses must still pay routine bills, even in the wake of a disaster or shut down. Business interruption insurance covers these expenses as well, while your company waits to open back up. This means that if a business experiences a covered loss that disrupts its operations, the insurance can help to cover the costs of things like phone bills, internet bills, and basic utility services.

Taxes

Uncle Sam isn’t going to wait for payment regardless of the circumstances. Without this insurance, taxes can act as additional expenses and will weigh you out. If your business owes taxes during a time of closure or interruption, you’ll want to be covered so that you won’t face fines or legal trouble.

Payroll

Most business owners care a great deal about their employees, and although unemployment insurance is in place to protect the workers, it often isn’t enough to cover their expenses. Business interruption insurance covers the employees’ payroll while they cannot work. This is a great safety net you can offer your employees with promising retention.

Relocation

Relocation is one type of coverage provided by business interruption insurance. If an incident or catastrophe calls for a relocation of your business, business interruption insurance will cover any relocation costs associated with the temporary closure and period of restoration. If civil authorities close a road that forces your business to temporarily close, insurance covers relocation.

What is Not Covered

While this insurance includes many covered events, there are plenty of exclusions to a business interruption insurance policy. However, most of them are covered by other insurance policies.

Physical damage from a flood or earthquake. Other insurance policies, like commercial property insurance, cover physical loss.
Undocumented income is not included in your financial records.
Utilities, because businesses shut them off during repairs.
Communicable diseases or pandemics that cause a shutdown of your business.
Property damage, which commercial property insurance covers.

How Much Does It Cost?

The cost of a business interruption insurance policy is based on a variety of factors, such as the industry, the number of employees, and the amount of coverage that you choose. Additional coverage options will also increase the cost. Overall, costs can also vary based on business location and the risk of making a claim.

How Much Business Interruption Coverage Do You Need?

Every business interruption policy has a coverage limit. The coverage limit is the maximum amount your insurance company will pay toward a business interruption claim. Selecting a good coverage amount is important because you’ll have to pay out of pocket for any financial losses above your coverage limit. In order to make a claim for damages under a business interruption policy, the business must first experience a covered loss. A covered loss is a loss that is specifically covered by the business interruption policy. Once the business experiences a covered loss, it can then make a claim for damages. Look at your business’ gross earnings and earning projections as guidelines for the right amount of coverage. The policy should cover the cost during any repairs.

How Long Does Coverage Last After a Claim?

There is typically a 48- to 72-hour waiting period for a business interruption policy to start after a covered loss. Look at your policy’s “restoration period,”, which is the length of time the policy will pay for covered losses. A restoration period can last up to 12 months. You can extend the 30-day period for up to one year. For both small businesses and larger companies, interruption insurance is very important. It’s a valuable safety cushion for all types of businesses. A good policy can make the difference between surviving a disaster and drowning in extra expenses. All small business owners should protect their business assets today with business interruption insurance.