Business interruption insurance (also referred to as business income coverage) is a type of small business insurance designed to replace lost income following events like fire or flooding, typically including fixed costs of running your business and profits that would have accrued based on financial records.
Loss of Income
Business interruption insurance provides financial compensation to cover day-to-day operating expenses, lost revenue and relocation costs for small businesses. This coverage may also assist in meeting loan obligations such as those from community development loans for small businesses or the Small Business Administration loan programs. Such coverage can be especially beneficial to firms that rely heavily on equipment to offer services or sell or manufacture products.
Business interruption policies become applicable when physical damage to property renders it unusable, often starting within 48-72 hours after damage and ending when restoration efforts have resumed in reasonable time or been extended by purchasing endorsements to extend them further.
When replacing machinery damaged by natural disaster, it could take your manufacturer months to regain income and start producing goods again. When this occurs, business interruption insurance could help cover rental or lease payments until production resumes and equipment rental or leasing costs are no longer incurred.
Many small businesses underestimate how long it will take them to recover from natural disasters, so it is vital that they carefully consider their business needs and collaborate with an agent or broker who specializes in this form of coverage.
Payments for Rent or Lease
Business interruption insurance policies may help cover some of the revenue you would have earned had your business been open during an accident, including mortgage or lease payments. Financial assistance plans may also cover expenses related to temporarily moving or paying overtime salaries to staff members who continue working despite your business closing down. Additional policies could include civil authority ingress/egress coverage, service interruption coverage and extra expense coverage. Civil authority ingress/egress insurance provides compensation for losses sustained as a result of actions by civil authorities following an event covered by this coverage. Service interruption insurance provides protection for essential services, like electricity, gas and water that your business relies on to operate successfully. Extra expense coverage is an optional endorsement that provides funding for expenses beyond normal operating costs like rent or utilities, such as temporary relocation expenses or paying employees while your business is closed for business.
COVID-19 and its pandemic impacting businesses around the globe is disrupting operations for many small-business owners; therefore, it is imperative that small-business owners consider how best to prepare and what coverages may help recover in case disruptions arise. If you want more information about adding business interruption or other types of insurance to their commercial policy, reach out to a licensed agent today.
Payments for Equipment
Business interruption insurance policies provide coverage for the expenses associated with purchasing equipment that helps a company resume operations after an emergency, including employee training on new machinery. A policy may even reimburse rent for temporary workspace such as an office or conference room rental.
Timeframe for qualifying for this coverage varies by insurer, though typically, it spans from when the property loss occurred and has ended to when operations have returned to normal – an era known as restoration period or waiting period of 24-72 hours is required before eligibility can be applied for under this type of policy.
As a small business owner, it’s vital that you thoroughly familiarize yourself with the terms and conditions of your policy. Doing this will enable you to better understand which causes of loss are covered as well as any deductibles or exclusions that might apply. Once informed, then making an informed decision as to whether business interruption coverage is suitable for your firm. To obtain a quote for such coverage contact an established insurance agency; many offer free consultations and can offer comprehensive lists of coverage options.
Payments for Moving
Many business interruption policies include an amount for moving expenses. This coverage helps cover the cost of moving your equipment, supplies and assets after an insured peril forces you to close down your operation. Some policies have an established dollar sublimit while others might use a more temporal measurement such as 14-30 days.
Depending on your policy, temporary relocation coverage could provide funds to rent the space needed, as well as pay any associated rent or retain employees during times when customers don’t make purchases.
Business interruption insurance also offers financial protection against mortgage, lease and loan payments due during periods when operations have been suspended, as well as taxes that must be made regularly even during an interruption.
As with other parts of a business interruption policy, its exact details and calculations depend on your provider. Your broker can explain this further and help you select an amount of coverage appropriate to your business needs. Keep in mind that losses due to shutdowns not caused by property damage typically fall under commercial property coverage.
