Business interruption insurance is designed to help prevent you from catastrophic losses due to a business disruption.
One brief business interruption can be incredibly costly for your organization, often leading to serious reputational damages or long-term closures.
Continuity is critical, and there’s few things more important than continuous revenue and cash flow, particularly for small to medium-sized businesses.
That’s where business interruption insurance can help.
Benefits of Business Interruption Insurance
The following are some of the major benefits:
- Revenue: In the event of a disruption, this provides coverage for income your business would have earned during a closure period if it had been operating normally.
- Rent or lease payments: Even if your premises are unusable following a disaster or other event, many leases still require that you make payments. This coverage allows you to continue making rent or lease payments, even while your business is not operating.
- Relocation: In the event that your primary location is unusable following a disaster or other event, you will likely have to relocate in order to remain open and continue generating revenue. This coverage can support the expenses of moving your business to a temporary location and may include both moving and rent costs.
- Employee wages: If you’re unable to operate, it’s likely you will not be able to continue paying employees. Business interruption insurance can help you avoid losing staff while you’re closed by ensuring that you make payroll. This is especially important, as finding new employees is often more expensive than keeping them.
- Loan payments: If you have an outstanding loan, you’ll need to continue to make payments even if your business isn’t fully operational. Business interruption insurance can help ensure you never miss a payment until you’re fully operational again.
How Does this Coverage Work?
Consider this scenario.
You are the owner of a small, family-owned bagel shop.
Following a recent fire, your bagel shop experienced major property damage. Not only were substantial repairs needed, but your company lost critical baking equipment.
Repairs for the damaged property and equipment were expected to take three months.
This would be a significant amount of lost time and revenue for your business.
Here’s how business interruption insurance would kick in:
Following a covered disruption, business interruption insurance can help your business stay afloat and recover quickly.
This is because business interruption insurance can reimburse income that your business would have received had you been able to operate.
This was particularly important for your bagel shop, as paying for costly repairs and not having a steady flow of income could have bankrupted your business.
With the right policy, your business can take the necessary steps to get back up and running, all without sacrificing day-to-day income.
What’s Included in This Policy?
The following is covered under a Business Interruption policy:
- Compensation for lost income if your business has to vacate its premises as a result of a disaster-related damage covered under a Property Insurance policy
- Covers the profits that would have been earned based on previous financial records, had the disaster not occurred
- Covers operating expenses, such as utilities, that must be paid even though business temporarily ceased.
- Covers expenses of operating in a temporary location while repairs to the permanent location are completed.
Key Considerations For Business Interruption Insurance
Here’s a few things to think about if you’re considering business interruption insurance:
- Business interruption insurance cannot be purchased on its own; it must be added to a property insurance policy or included in a business owner’s insurance policy.
- Policy limits should be sufficient enough to cover a large amount of time to rebuild the permanent business space. Generally the business must be closed for several days before coverage begins, and it does not pay for those days retroactively.
- Price of coverage depends on the risk of disaster to the premises. This may depend on the location of your business, the nature of your business and how easily your business can function in an alternative location on a temporary basis.
Conclusion
Business interruption insurance is designed to give businesses access to the assets they need when they need it most.
However, these policies can be complex. It’s important to work with an advisor closely when seeking coverage.
Here at O’Neill Insurance, we understand your business needs to be protected, and we’re here to help.
If you need help with your business insurance and would like to speak to an advisor, fill out this brief form and one of our licensed advisors will be in contact with you.
