What is Business Interruption Insurance

Interruption insurance is a handy thing to have in the event of a loss. It can help your business continue to function, even if there are obstacles in the way. According to the Insurance Institute for Business & Home Safety, 25% of businesses that close due to a disaster do not reopen. Having the right insurance coverage can help your business stay afloat, even after a major loss.

 

What is Business Interruption Insurance?

Interruption insurance helps protect you in the event your business cannot operate or loses income after a loss. So, for example, if there was a big fire and it destroys your inventory, business interruption insurance will help you recuperate some of the losses, since you cannot operate.

Interruption insurance can also help pay for the additional costs to keep your business running after a loss. For instance, if your business decides to temporarily relocate so it can stay open, interruption insurance may help cover some of the cost differences.

To summarize, this is what it covers:

  • Revenue lost due to the closure.
  • Fixed expenses, such as rent and utility costs.
  • Expenses of operating from a temporary location.

 

Typically, insurance companies define “loss earnings” as revenues minus ongoing expenses. It’s also important to note that your pre-interruption earnings help determine your reimbursement.

In order to be covered by interruption insurance, there needs to be physical damage to property that resulted from an insured event. So, for example, in order be eligible for business interruption after a fire, you would need to have insurance for your property in the event of a fire.

 

How Much Coverage Do I Need?

The amount of coverage you need for your business is largely dependent on the type of industry you are in, the function of your business, and its size. For example, a tech startup will require a different amount of coverage than a mechanic would or a clothing retailer. It’s important to consider the uniqueness of your business and how to best protect it. Talking to your insurance agent is the best way to determine the coverage suitable to your business. While speaking to an agent is best, there are some things that you should consider or discuss with your agent.

  • How likely is it that your business will experience a loss? This could be dependent on location or industry.
  • If something did happen, how much time would it take to get your business running again?
  • If you rent the property, is your building protected? How well?
  • Are your safety systems up to date? Check the fire alarms, sprinklers, security systems, etc.
  • If your business needed to relocate, is there a space nearby that could work? Or, would it take a long time to find a comparable commercial space that would suffice and be readily available?
  • Is your business located in a disaster prone area (hurricanes, earthquakes, etc.) These areas may require a greater amount of coverage. It could also result in competition if a lot of other businesses are also displaced.

 

How Do I Get Coverage?

You can get business interruption insurance as a stand-alone policy, or as a part of these commercial insurance policies:

 

You should talk to your insurance agent about the best coverage for your business. Whether that’s buying it as a stand-alone policy, adding it onto your commercial property insurance, or something else, they will help you find the coverage that your business needs. Also keep in mind that there are limits to business interruption insurance. Make sure you ask your agent about the policy limits before selecting your coverage.

 

Call Encharter at 888.754.8299 and discuss any questions you may have about Interruption insurance!

 

Additional Sources:

https://www.iii.org/article/covering-losses-with-business-interruption-insurance

 

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