When a business is forced to shut down for something out of its control like a natural disaster, fire, or theft, the interruption to revenue can cause all sorts of financial issues and even lead to business closure. Thankfully, business interruption insurance can provide the means to pay your bills, including employee salaries, rent, and more even when you can’t operate as usual. Read the following to learn more about interruption insurance and how it could benefit your business:
What is Business Interruption Insurance?
Put simply, business interruption insurance is exactly what it sounds like, insurance that protects your business in the event that operating, as usual, is interrupted. The purpose of business interruption insurance is first and foremost to replace lost income if you are unable to operate your business due to a covered loss, like theft or fire. Just imagine how you would handle a tree falling onto your business, forcing you to close for a matter of time while the repairs are made. This type of policy could help you cover the loss of your income for the time you are closed due to repairs.
Who is Business Interruption Insurance Created For?
While all businesses, no matter their size, can benefit from business interruption insurance, some are in more need of this coverage than others. Keep in mind that business interruption policies typically include coverage limits, which is the maximum amount your insurance company would pay for any claim. Having a good coverage amount is essential as you will be responsible for any loss that exceeds that coverage limit.
This type of insurance coverage is especially helpful for businesses that rely on their physical facilities and assets, including machinery and equipment to generate revenue. Restaurants, retail stores, cosmetic salons, and more are good examples of the types of businesses that would be hard-pressed to get by if something happened to their physical location, interrupting business as usual.
When Contemplating Business Interruption Insurance, Consider This
You as a business owner are the expert in terms of whether your business could withstand a significant interruption or pause in your revenue generation. Answer the following questions, which will give you a good idea if you would benefit from this type of coverage:
- How long would it take for your business to recover from a disaster like a fire?
- Are your fire alarm system and security system up to date and functioning optimally?
- Can you find office space to rent easily in your area if your physical location was unavailable for some purpose?
- How much does it cost to rent a space in your area?
Why You Need Business Interruption Insurance
If your operations are stopped for an extended period of time, the costs can be staggering. Consider not only the lost income but the cost of paying employees who are unable to work, damage to your business reputation in some cases, and even the expense of finding a temporary place to operate your business. All of this can lead to financial instability in even the most successful businesses.
In the event of a flood, fire, or other covered devastating perils, many businesses find themselves losing the property they have had permanently or having to rebuild. This can mean permanent closure for those who depended on their physical location to generate revenue.
What Business Interruption Insurance Covers
There are many aspects to business interruption insurance coverage. The following are a few of the most commonly covered elements:
- Loss of Revenue: With business interruption insurance, your business will be reimbursed for lost revenue missing during your temporary shutdown.
- Staff Wages: You will also enjoy coverage of staff wages, meaning you will get help covering payroll while your business is not producing revenue during an interruption.
- Rent or Lease Agreements: Your lease or rent will also be covered while you attempt to reopen your business.
- Loans: This element of a business interruption policy will ensure that you are not late or miss any payments during the time while you are shut down.
- Taxes: You will even get coverage for taxes you owe that you cannot pay due to your business shut down for a covered loss.
- Extra Expenses: In addition to all the above, business interruption insurance will also give you compensation to pay for a new facility, equipment rentals, cover the cost of new employee hiring, and more.
- Training: If you have to train new staff due to your shut-down, this would also be something that is also covered under a business interruption policy.
- The Cost to Relocate: If your property is damaged beyond repair, you might also use business interruption insurance to cover the cost of moving your business to another facility or space.
What Isn’t Covered Under Business Interruption Insurance?
While business interruption coverage includes protection against many situations and provides compensation allowing you to keep your doors open after an interruption, it isn’t without some limits. The following are costs that aren’t covered under this type of policy:
- Damages to your commercial property that is not covered under your policy.
- Voluntary closure of your business.
- The replacement of undocumented business income.
- Utility expenses.
- Interruptions that are short.
How Much Does Business Interruption Insurance Cost?
The cost of business interruption insurance depends on factors like your industry, the number of employees you have, and the level of coverage you choose. It will also depend on your business location and claim risk that could affect your use of such coverage.
It Can Be a Good Idea to Have Business Interruption Insurance
In the event of an unexpected and awful event, you will want to be prepared. Purchasing business interruption insurance could potentially protect your business, your employees, and even your financial future.