Protecting Your Business with Interruption Coverage
Running a business comes with a lot of responsibility. Not only does it help you support your family, it also probably helps others provide for theirs as well. What would happen if a storm damaged your place of business so badly that you are unable to operate? Are you protected? If you have commercial property or disaster insurance, you’re probably thinking you’re all set. But if your insurance just covers the repairs to your building, is it really covering the actual loss sustained? What about the money you lose from not being able to operate? That’s where business interruption coverage comes in.
But what is business interruption insurance? What’s the difference between business interruption vs. business income coverage? What happens during a loss of business income insurance claim? What type of insurance covers business interruption? Does property cover business interruptions? Business loss insurance can be a complex area of policy coverage, so we want to clear up the confusion.
What is Loss of Income Insurance?
Loss of income insurance, often referred to as business income, contingent business interruption, or business interruption insurance, protects your business and can help replace income lost during a temporary shut down or interruption of operations after an unexpected event.
There are many different types of business interruption insurance – it could be part of your commercial or property insurance, or it could be a standalone policy.
What triggers a business interruption claim? A business interruption example could be when a storm damages your business property and you must stop operating. Your property insurance will likely cover the cost to repair the building, but your business interruption coverage will cover the loss of income and profit, moving to a temporary facility, and other expenses. Without business interruption protection, you would be stuck paying for those added expenses on your own.
What Does Business Interruption Insurance Cover?
Business interruption insurance usually covers added expenses from lost business after a covered event like theft, fire, or covered natural disaster or disruptive events. This could include things such as:
- Lost income or profits you would have earned without the interruption
- Operating expenses like mortgage, rent, or lease payments, as well as utilities, and other fixed costs
- Relocation costs if you have to move to a new or temporary location
- Training costs if your employees must learn how to use new equipment or machinery
- Payroll owed to your employees while you are unable to operate
- Taxes due during interruption
- Loan or debt repayment responsibilities during interruption
Most policies outline a specified length of coverage time, referred to as the restoration period. There is usually a waiting period after an event and before your business interruption claims start paying out.
What are the Exclusions for Business Interruption Insurance?
One common misconception about business interruption coverage is that it will cover your full loss. It is important to remember your coverage will only last a set amount of time outlined in your policy, and there will be losses it can’t cover. For example, if your restaurant has to close because of a fire, your policy will probably help you rebuild and pay your employees. But it could take longer to rebuild than the estimated time, or you could lose some regular customers while you are closed, and those losses won’t be covered under most policies. Some other common business interruption insurance exclusions include:
- Physical property or company vehicle damage
- Employee injury
- Undocumented income
One area of contention with business interruption insurance that has increased in importance recently is pandemic and communicable disease interruptions. Policies usually cover losses from physical damage for coverage perils only, so pandemics, epidemics, and communicable diseases aren’t covered events. However, considering the Covid-19 pandemic, many state legislatures and carriers are reevaluating policies although we are in very early stages to see any changes just yet.
How Much Business Interruption Insurance Do I Need?
Like with most coverage options, there is no one-size-fits-all approach to choosing your policy. The amount of insurance you need depends on your business. Your policy will take into consideration your:
- Average monthly revenue and cashflow
- Operating costs
- Wages and salaries
- How long you can operate with your cash on hand
- Amount of savings
- Size and nature of your business
- Risk of your location (i.e., areas more prone to natural disasters)
Just like your other insurance, the more coverage you get, the more you will pay. But business interruption insurance is not an area where you want to cut corners. An experienced agent can help you find the amount that is right for you.
How is Business Interruption Calculated?
Business interruption insurance calculation can be tricky. It must account for your physical location and what you would have earned if you didn’t experience an interruption. It also has to consider future projections and market trends. Insurance companies usually review tax returns and profit/loss statements to understand your company finances. A claim amount is usually based on a previous month’s revenue, so it won’t help you break even if you are already operating at a loss.
Hanson & Ryan Can Help
When considering business interruption insurance, there’s a lot of information to digest. What sets Hanson & Ryan apart from other insurance companies is our top tier customer service. When you work with us, we guarantee our continued assistance, so you’ll have a concrete understanding of the process. If you’re interested in learning more about our extensive insurance offerings to protect your business and employees, reach out to the team at Hanson & Ryan today.