Business interruption insurance replaces lost income resulting from an event that interrupts business operations such as a natural disaster. Business owners cannot obtain business interruption insurance as a separate policy. To obtain it, business owners need to request their insurance company to either add to a property or casualty policy or in their comprehensive package policy.
What Should You Know about Business Interruption Insurance Before You Get It?
Most standard business policies do not cover loss of revenue in the event your business cannot operate. Instead, they only reimburse you in the event your business sustains damage or loss to tangible items such as your warehouse, store, or office and equipment and inventory.
Therefore, most business owners consider adding business interruption insurance to their existing coverage. If you want to obtain business interruption insurance, you need to find out the amount of coverage you require and the types of interruptions you want your insurance to cover.
Calculate the Amount of Business Interruption Insurance Coverage You Require
To calculate the amount of business interruption insurance coverage you require, imagine how an unexpected disaster would affect your business. Consider all the costs that would result as a result of an unexpected disaster, including the continued costs.
The continued costs include lease or loan payment and taxes that you would still have to pay due your business not being able to operate for some time. You should also consider the charges you will no longer have to pay such as utility service.
If you want to continue to employ your workers and provide salaries while you rebuild your business, your insurance company should compensate you.
What Does Business Interruption Insurance Cover?
Business interruption insurance usually covers the following things:
- Profits you would have earned during the duration your business was not operating
- Fixed costs include operating costs and expenses that you would continue to pay even though your business is out of action
- Temporary location are the costs and expenses related to moving your business to a different location while you rebuild your permanent location
- Disruption covers the costs and expenses related to the interruption caused by service providers such as telecommunications, water, and power
- Additional expenses and costs reimburses businesses for the costs of rebuilding parts of their location while they continue to operate from the location
- Civil Authority Ingress/ Egress occurs when the government instructs the closure of a business that results in financial loss
If you are considering obtaining business interruption insurance, you need to ensure your policy limits are enough to cover your costs and expenses for several days. Once a disaster occurs, it might take your business longer than anticipated to start operating. Hence, a few days of coverage may not be enough. You will have to wait two days or 48 hours before your business interruption insurance can go into effect.
If your business is at high risk of a fire or natural disaster your insurance company will consider that before setting the price of business interruption insurance. For instance, restaurants will have to pay more for business interruption coverage, as the likelihood of a fire starting at their premises is high.
Proving Your Losses
You need to prove your losses by providing your insurance company with details of your lost revenue due to the disaster. From the start, make it a habit of saving your records on your home computer, USB, or cloud. Along with doing that, you can also print and store copies of important documents in your home or in a safe.
In the event a disaster occurs, you will be able to prove your loss of revenue to your insurance company. In addition to this, you need to create an emergency fund. Typically, insurance companies do not consider the first few days after a disaster. For this reason, you need to have an emergency fund so you can use the money in it to operate your business on the days not covered by your business interruption insurance.
The Duration of the Period of Restoration
Insurance companies are responsible for the loss of income during the period of restoration. The period of restoration is the duration it takes to rebuild, replace, or repair the damage and it ends when all the repair work completes.
If your policy expires in the meantime, the period of restoration will not end with it. Your insurance company will continue to reimburse you for the remainder of the period, until your business is up and running, even if your business interruption insurance expires.
If you require additional time to get your business up and running again, you can extend the standard period of restoration to an additional 30 days. If you require more than the additional 30 days to relaunch your business, you can increase the limit, anywhere from 60 days to 720 days. However, you will have to purchase the additional days required to repair your property separately.
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Pawson Insurance | Legal Disclaimer |
Informational statements regarding insurance coverage are for general description purposes only. These statements do not amend, modify or supplement any insurance policy. Consult the actual policy or your agent for details regarding terms, conditions, coverage, exclusions, products, services and programs which may be available to you. Your eligibility for particular products and services is subject to the final determination of underwriting qualifications and acceptance by the insurance underwriting company providing such products or services. Statements on this website as to policies and coverages provide general information only. This information is not an offer to sell insurance.