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How Does Business Interruption Insurance Work?
Business interruption insurance became a popular search inquiry in 2020 as many business owners saw drastic financial losses due to the COVID-19 pandemic. This insurance can help businesses pay for things like lost profits, relocation costs, and temporary office space.
Unfortunately for them, most business interruption coverage does not include pandemics. However, in the United States, Gov Baker signed a $4 Billion COVID–19 Relief Bill. This is a major dilemma for small businesses and governments worldwide.
Nevertheless, business interruption insurance can save a lot of money in the case of other unprecedented types of events. What does coverage include? Most importantly, how does business interruption insurance work?
Definition
Business interruption insurance is a type of business insurance. In times when a qualifying event inhibits your business from operating, as usual, your insurance will protect you. The policy payout can help to cover lost income, continuing expenses, and other damages that are associated with business and industry interruption. Insurance can help pay bills during your restoration of power. In general, it makes up for lost income in times when your business has a suspension of operations and is unable to make income. This comes in handy to save your business activities and business operations.Qualifying Events (Covered Peril)
A peril, which is the subject of an insurance policy, is a cause of damage that results in the insured policy. There are two types of perils coverage, which are Open Perils and Named Perils.- Property damage: If physical loss or damage prevents your business from operating, as usual, you are entitled to interruption insurance for the duration of the restoration period.
- Natural disasters: Business interruption insurance covers costs when fires, tornadoes, storms, hurricanes, or other natural weather events cause your business to close.
- Theft and vandalism: Insurance covers costs when criminal activity takes place. Sometimes, events like riots, terrorist attack, civil commotions qualify too.
What Does Business Interruption Insurance Cover?
Interruption insurance covers many essential costs when damage forces operations to stop. Note that each specific plan comes with different requirements, types of claims, and levels of coverage, but in general, these are the main areas.Employee Wages
When your business has to close down, you do not want to have to let go of any employees due to loss of income and having to hire new ones later. Payroll is one of the most important factors it covers. Keep paying your employees during the restoration process to save on things like unemployment and hiring costs. If a business is forced to close due to a qualifying event like an outbreak, business interruption insurance can help to pay for the wages of the employees. This can help to keep the employees employed and help the business to resume operations as soon as possible.Taxes and Loan Payments
One of the things that business interruption insurance can help pay for is loan payments. If a business is forced to close due to a qualifying event, business interruption insurance can help to pay for the loan payments. This can help to keep the business afloat and help it to resume operations as soon as possible. You will obviously need to keep paying these essential bills. Avoid facing fees and jeopardizing your finances by having insurance that will cover your costs when you are unable to.Civil Authority Ingress or Egress
When a natural disaster happens, most of the time, the location of a business cannot be accessed. This is when ingress or Egress coverage enters. For example, the inability of customers to store, products cannot be shipped out because of damage to utilities, and raw materials cannot be shipped. These are times when government mandates affect your business. Measures like enforced curfews and street closures may force the closure of your business. Insurance will cover the incurred loss due to government interference.New Training Costs
If your business shuts down and requires purchasing new equipment or establishing new protocols, it will cover training costs. The training cost is not only for humans but also for supply chain disruptions.Revenue
One of the things that interruption insurance can help pay for is revenue. If a business is forced to close due to a qualifying event, business interruption insurance can help to pay for the revenue. The company will reimburse you based on your past average performance. It is necessary to have documentation of the past month’s profits and financial records.Temporary Location Costs
If you must move to a new location for interruption insurance, the company will pay for the relocation. The damage that can happen which requires relocation includes physical property damage, flood damage, and actual material damage.Extra Expenses
Lastly, many plans include extra expense coverage, but often as an add-on. This is basically just the extra money needed to keep your business afloat while you get back on your feet. They have to be reasonable expenses to be reimbursed. If your business is affected by a qualifying event, you may be eligible for extra expenses coverage. This coverage can help to pay for the costs of doing business while the business is recovering from the event. Depending on the length of time that it takes to get your business back to normal, your insurance may not cover the entire restoration period. The typical limit is 30 days, which is the standard policy from most insurance companies. However, you may be able to use an endorsement. This covers your expenses for a longer period of time, up to a year.Filing A Business Interruption Insurance Claim
If you have business interruption insurance, or if you are looking to purchase it, it is important to know what happens when you file a claim. To file your claim you will need:- Time-stamped documentation
- Payroll and expenses information
- Photos to support your claim
