What is Business Interruption Insurance & Who Needs It?

When unforeseen circumstances interrupt your business operations and you need financial relief, business interruption insurance can help ease that financial burden. While business owners are normally prepared to protect their physical assets, their overall business protection may be overlooked. Business Interruption Insurance may be the saving grace that turns a major loss into a temporary setback. 

Business Interruption Insurance is a coverage that compensates for the loss of income a business suffers after a disaster. This insurance will cover the profits lost had the company been in operation. This coverage is not typically sold as an individual policy, but can be added to a property and casualty policy or included in a comprehensive package policy. 

Why is business interruption insurance important?

1. Revenue Protection- When disaster strikes, operations may be forced to stop temporarily. Without business interruption insurance, the revenue lost during this downtime could be detrimental to the business. 
2. Fixed Expenses Coverage- Despite halted business operations, expenses such as rent, utilities, and salaries continue. A BII policy can help cover the costs associated with this temporary move. 
3. Temporary Relocation Costs- If a loss occurs and pushes a business out of their location, it may be moved to a temporary location. The BII policy will cover expenses incurred during the temporary move. 
4. Loan Payments- Any loans the business is responsible for during the time of interruption will continue to be billed while the business is closed. A BII policy will ease some of these burdens without putting a serious strain on the business’ cash reserves. 

Key Components of Business Interruption Insurance

1. Business Income Coverage- This compensates the business for the lost income during the time of closure. 
2. Extra Expense Coverage- This helps to cover any additional costs associated with continued operations and additional accommodations. 
3. Contingent Business Interruption Coverage- This coverage applies when the disruption is caused by a supplier or customer that your business is dependent on. 
4. Civil Authority Coverage- Businesses closed due to government-mandated closures can receive financial assistance during their time of business interruption. 

What to Consider

1. Coverage Limits- Ensure your coverage limits are enough to cover the potential loss of income and extra expenses for the time your business may be closed. 
2. Indemnity Period- This is the time period that benefits are available to the business while they are closed. 
3. Policy Exclusions- Policyholders should be aware of what is and is not covered under the policy. Common exclusions include voluntary closures, pandemics, or damage that could have been avoided with proper maintenance. 
4. Documentation- It Is crucial to keep detailed records to turn into the insurance company, they will help assess the extent of the loss. 

Investing in Business Interruption Insurance may be the investment that saves your business in an unexpected closure. Many business owners do not plan for their businesses to close and interrupt their income. Having the proper coverage can help you when things take an unexpected turn. When the bills add up and the income suddenly stops, a Business Interruption Insurance policy can help get you through the loss period and protect the business owner from the financial impacts of their business closure.