Business Interruption Insurance Basics

Why do you need to consider this coverage?

There are so many pieces to making a business run smoothly and successfully. If one piece is out of place, things can fall apart quickly. So why not protect your business from potential disaster in any way you can??

There are many risks that businesses face – from business interruption due to supply chain breakdown to cyber-attacks and breaches – so are you prepared and able to continue paying your rent, salaries, taxes, etc.??

If you look at the average property claim vs. the average business interruption claim, according to some reports, business interruption claims are 32% higher than property loss claims. Average business interruption claims are estimated at $1.36 million where average property claims are around $1.03 million. So, it seems that preparing for potential business interruption is imperative in today’s business climate.

What does it cover?

Business Interruption Insurance is sometimes called Business Income Insurance for a reason – if your business is forced to temporarily shut down, this coverage can help with the ongoing expenses so you don’t have to close your doors permanently.

Basically said, if your business can’t perform its normal operations because of an event covered by your commercial property insurance policy, the benefit of Business Interruption Insurance can help you cover ongoing operational expenses.

Most often this policy is included in your Business Owner’s Policy as a part of its Commercial Property coverage.

Business interruption insurance may compensate you for lost income if your business has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the revenue you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.

Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in.

The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location.

Reference: Insurance Information Institute & Allianz Risk Barometer 2015