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What is Covered by Business Interruption Insurance?
What is covered by business interruption insurance?
Also known as business income insurance, this form of insurance helps replace lost business income for businesses that need to temporarily close. Business interruption insurance provides financial compensation for lost income and expenses incurred as a result of a covered event that disrupts the company‘s normal operations. It’s important for all businesses, but can be especially critical for small businesses.
Natural disasters, theft, and other events may lead to closures. The policy covers business losses from property damage, liability, theft, and business interruption. This insurance also includes casualty policies, making it a form of casualty insurance.
This coverage is valuable for paying necessary expenses while your business is closed and not earning income.
We’re here to break down what this insurance does and does not cover, as well as key add-ons for additional coverage.
What does Business Interruption Insurance Cover?
Here are some expenses that owners use business interruption insurance to cover in situation needed :- Profits your business would make if it were open.
- Monthly mortgages, lease payments, and rent for the space.
- Loan payments.
- Taxes.
- Payroll for employees working remotely.
- Relocation costs if you must move to a temporary location.
- Training costs for employees to learn how to use new equipment.
- Utility bills for a temporary office location.
How Long Does Business Interruption Insurance Coverage Last?
The length of coverage varies depending on the policy. Some policies provide coverage for a set number of days or weeks, while others provide coverage for a specific period of time after a covered event occurs. A 48 to 72-hour waiting period usually occurs before a business interruption policy takes care of expenses from a covered peril. The length of time that a policy pays for losses is the “restoration period,”, which often lasts up to twelve months. A restoration period can last as little as thirty days but will extend up to a year if need be. In other word, the restoration period begins when the covered damage forces business operation and ends when the covered damage is repaired. Business owners should confirm with the insurance company what the policy limits are. After all, a major disaster can keep a company from being “back in business” for longer than most people realize.How Much Business Interruption Insurance Coverage Do You Need?
Every insurance plan has a policy limit, which is the maximum they will give for a claim. Choosing the right coverage amount is fundamental, since you’ll have to absorb any financial losses that exist beyond your coverage limit. It is important to speak with an insurance agent to get a better idea of how much coverage you need. Use your gross earning and earning projections as guidelines for deciding the right amount of coverage to buy. You want this insurance to cover operating expenses while your business undergoes repairs. Repairs can happen when you relocate to a temporary location or move to the new one.What does Business Interruption Insurance Not Cover?
Unfortunately, business interruption insurance can’t cover everything. There are some limitations that depend on the insurers contract and policy available. Some exclusions to a business interruption insurance policy involve:- Physical damages from natural disasters (floods or earthquakes).
- Income that isn’t listed in your financial records.
- Utilities (they typically shutting off when a business undergoes repairs).
- Contagious diseases that lead to a business shut down.
- Damaged or lost property in a covered event.
- Losses that are not a result of the company‘s employees being injured.
Should I Buy Business Interruption Insurance as Part of a Business Owners Policy?
A BOP is sold at a premium. As with any other insurance provider, you can also opt in additional, like, crime, fidelity, forgery, and more. A business owners policy (BOP) bundles two other types of insurance with business interruption insurance, which are:- General liability insurance: This covers many potential claims such as physical injury, property and advertising damage, copyright infringement, and reputation harm.
- Commercial property insurance: This protects a business’s physical assets (furniture, computers, supplies, inventory, and tools). It also protects valuable papers and business records.
Key Add-ons
Often referred to as endorsements or riders, these add-ons can extend the coverage of a commercial property insurance policy.Contingent Business Interruption Insurance
This add-on offers coverage if damage or destruction of non-owned property weakens or eliminates the business owner’s earnings. Four types of entities that count as legitimate dependent properties include:- Suppliers. Contributing locations that supply business owners with the parts, materials, or services needed to assemble a product or offer a service.
- Buyers. Recipient locations that buy or accept products, goods, or services of the insured business owner.
- Providers. Also known as “manufacturing locations,” these services construct products and deliver them to a business owner’s customers under a contract of sale.
- Drivers. Also known as “Leader Locations,” these entities typically consist of whatever brings customers to an area, such as anchor stores (Target, Walmart. Macy’s, and so on) and sports and entertainment venues.
Extra Expense Insurance
Extra expense coverage includes beyond the normal day-to-day operating expenses. Some examples of extra expenses include:- Renting a temporary place of business while the original place is undergoing restoration.
- Replacing hardware, technology, and furniture.
- Paying overtime for employees.
- Hiring more employees.
- Leasing equipment.
Civil Authority
This coverage usually does not last longer than two weeks. It activates when a civil authority (state, local, or federal governmental entity) restricts access to an insured business’s premises. The policy may still require direct physical loss before activating civil authority coverage.Utility Services
Operation suspension disrupts basic utility services (electricity, gas, or water that public or private utility companies offer). The utility service endorsements prolong business interruption coverage during the temporary closure. The two specific utility service endorsements are:- Time elements. This coverage is trigerred when a power line fizzles out or a water main stops working. It covers the cost of income and expense losses for a predetermined time limit or until the utility service is restored.
- Direct damage: This endorsement extends property insurance and offers protection against damage to a business owner’s property. The damage in question is when covered causes interrupt utility services named in the policy.
