Business Interruption Insurance: What Does It Cover?
Business interruption insurance is a type of commercial insurance that compensates your company for any lost revenue or unexpected expenses.
Business interruption insurance generally does not cover temporary interruptions, such as power outages, or offer protection against losses unrelated to property insurance. If your company experiences an unexpected incident, like a fire, then your office could be forced to close temporarily. During these types of unforeseen closures, business interruption insurance could cover your expenses during that time.
Although your business insurance broker can discuss specific events covered by your policy, below are the different types of expenses that business interruption insurance covers in most cases.
Rent or Lease Payments
Business interruption insurance covers all your lease and rental payments while your business cannot operate. If you are closing your business temporarily, you will still have to make rent or lease payments on the property. In most cases, business owners must pay for the equipment they don't own.
For instance, if your electronics store is damaged in a fire, you can use business interruption insurance to cover the rental payments until your shop reopens and throughout the renovation period.
Let's suppose your business can no longer make sales, serve customers, or work with clients because of damage to your property. Interruption insurance compensates your business for lost revenue, and the policy guarantees that a temporary shutdown does not turn into a permanent closure.
There are times when you could be forced to relocate your business. If any devastating or unexpected event forces you to relocate, business interruption insurance will help you bear the brunt of the moving costs. Your business could also use this money to cover the rent in a new location.
Retaining employees and covering their wages can feel impossible doing a temporary business closure business because you may have difficulty paying their wages. With business interruption insurance, you can pay your employee wages on time. Most policies offer coverage for up to a year for each employee.
An example: If a water pipe bursts in an architecture firm, it can flood the office and destroy valuable documents. Moreover, the carpeting, furnishings, and walls could be damaged. With business interruption insurance, the company can pay their employees for up to a year while the space is repaired.
Even if your business is experiencing a temporary shutdown, your company will still have to meet its annual and quarterly tax obligations.
With business interruption insurance, you will have enough funds to pay your taxes, even with no revenue.
Most business owners, especially small business owners, have loans to pay. If you are not making any substantial profits, business interruption insurance will ensure you can make your loan payments and pay down your loan.
How Much Coverage Should You Have?
Typically, business interruption insurance has a coverage limit, or the maximum amount allocated toward a covered claim. All financial losses that exceed your coverage limit become your responsibility. Thus, it is crucial to opt for coverage limits suitable for your business needs.
Here are a few points employers should consider when selecting business interruption coverage:
How much time would it take to get your business back up after experiencing a loss?
How well is your commercial building protected?
Are your sprinklers and fire alarms up to date?
Is a comparable commercial space available nearby? If not, how long could it take to find a suitable temporary or even permanent location?
Why Is Coverage Important?
Business interruption insurance can help you pay for extra expenses and replace lost income if your business experiences an unexpected and damaging incident. This type of coverage is a crucial component of every solid business plan.
Business interruption insurance typically has a restoration period that refers to the length of time your policy can help pay for extra expenses and lost income. Ensure you read your policy documents closely and consult your broker to understand your restoration period. Generally, it takes two to three days before the restoration period kicks in, but it can also last for about a year.
The best way to get the right business interruption insurance coverage for your company is to work with an experienced commercial insurance broker, preferably one who specializes in your company’s industry.
Looking for more exclusive content? Check out the Mployer Advisor blog, and read on for what types of business insurance are required for your company.