Day in and day out, companies conduct business in an environment with shelter for employees, equipment and products. This typically includes an enclosed building with power and water, and they can freely go about their tasks to grow and profit in their sector. To further protect themselves, they carry various forms of insurance, providing coverage for things like vehicles, employees, property and liability.
What about when your operation gets temporarily shut down through no fault? Any work stoppage can severely damage your business, and you could lose clients, customers and staff while no money comes in.
Fortunately, there is business insurance coverage you can get for a loss of income due to different, unforeseen disruptions. This is called business interruption insurance.
What is business interruption insurance?
Business interruption insurance is insurance coverage that can replace business income that is disrupted, reduced or lost if your operation is suspended because of an unforeseen peril. This could be a:
- Natural disaster
- Fire
- Wind
- Falling objects
- Theft
These are examples of what can be included in your policy. There is typically a restoration period that states the amount of time a policy will pay you for lost income. Also, there will be a 48-72 hour waiting period before the policy starts its coverage.
Coverage will be paid according to what is stated on the specific policy and includes a recoupable amount that will not be exceeded. To determine the amount of coverage you require, consider your gross earnings and projected future profits to determine the right amount. This way, you won’t have to pay out of pocket for any extra expenses. Consider:
- The length of time it would take to recover after any damage or physical loss
- Is there another location nearby that you could use as a temporary workplace?
- Does your building have adequate fire protection, like alarms and sprinklers?
What Does Business Interruption Insurance Cover?
Even though your business has been interrupted, your expenses continue. This heavily affects the bottom line because you can’t bring in income when your operation is affected. These are some of the expenses that your interruption insurance will cover:
Business Income Coverage
Here is what business income coverage covers:
Lost Revenue
This is when a peril impedes your ability to conduct business, and you can’t make revenue.
Leases and Mortgages
The physical location where you conduct your business may have mortgage, rent or lease payments that still need to be paid monthly.
Loans
If you have an existing loan against your operation, the monthly payments can be covered for the duration of your shutdown.
Payroll
Even when income is not coming in, you still need to pay your employees.
Taxes
Your government taxes are still due, monthly or quarterly, and must be paid on time to prevent penalties.
Extra Expense Coverage
Here is what to expect from extra expense coverage:
Relocation
If you need to move to a temporary location to conduct business.
Rental Equipment
You may need to rent equipment to resume business.
Training
You may have to train employees on new equipment and machinery.
Transportation
This covers the cost of additional transport costs to a new location.
Overtime
You may need to pay non-exempt employees overtime.
Contingent Coverage
Here is what the contingent coverage includes:
Disruption Loss
If a supplier or business partner has a disruption that affects your operation because you rely on them, you can get coverage for that loss.
Civil Authority Coverage
Here is what to expect from civil authority coverage:
Government-Mandated Closures
This could be evacuation orders, street closures and curfews that cause a loss of income.
Additional coverage for extra expenses is needed to help limit your loss and speed up your return to business.
Some things, however, are not covered by this insurance, including:
- Flood and earthquake
- Damaged to property
- Utilities
A different type of insurance will cover these. Any undocumented income that is not on your financial records will not be included as well.
The cost of your insurance depends on several factors, like the type of industry you are in, the number of employees you have if you are in a high-risk location and the amount of coverage you seek.
Who Needs Business Interruption Insurance?
Insurance is often considered a necessary evil, but it safeguards against unforeseen events that disrupt your life and compensates you accordingly. So, who needs business interruption insurance? Everyone who owns a business because your expenses continue to come in regardless of your ability to make money due to an unforeseen peril.
This is what business interruption insurance is and how it works. Your business is your livelihood, so cover yourself from any potential loss by contacting your local insurance provider to see the amount of coverage right for your company.
