Business interruptions can come in all shapes and sizes. Whether a natural disaster that knocks out power for weeks or a fire that destroys your property and inventory, these risks can bring your operations to a standstill.
Being unable to open your doors to customers creates obvious challenges. If you can’t run your business, how are you supposed to generate revenue? How are you going to pay employees or vendor invoices?
These are all questions every business owner thinks about, but doesn’t ever want to face. One way to protect yourself and your business against such risks is by taking out a business interruption insurance policy to enhance your firm’s coverage.
What is business interruption insurance?
Whereas other types of business insurance might cover costs incurred due to damage or a lawsuit, business interruption insurance can actually replace lost income during periods when your business is unable to open.
This type of coverage primarily works to replace lost income and revenue. The amount of money you will receive depends largely on your historical financial records, so be sure to preserve all your important documentation regarding earnings and profit forecasts.
It can also help provide financial help for:
- Employee payroll
- Fixed operating expenses
- Commercial mortgage, rent or lease payments
- Training on new equipment
- Loan payments
- Temporary relocation
Most importantly, a policy will cover lost income due to a covered peril (i.e., an event that is explicitly covered by your insurance). Typically, covered perils for business interruption insurance include:
- Natural disasters (excluding earthquakes and floods)
- Fires that destroy property or product inventory
- Forced closures due to civil authority
There is a limit to how long you can receive benefits, however, That amount of time is determined by the restoration period defined in your policy. This can last anywhere from 30 days to 12 months. Typically, however, you’ll need to wait one to three days after making a claim before the restoration period begins.
What does it NOT cover?
While interruption insurance can provide a financial safety net if your business is forced to close, it does not cover every event or type of cost.
One big thing to know is that such policies do not cover pandemics. This has become a point of contention in the wake of COVID-19, but for the most part, business interruption insurance does not cover shutdowns due to disease spread.
Other costs not covered by interruption insurance typically include:
- Broken glass and windows
- Undocumented income that wasn’t included in your financial statements
Also, as mentioned, losses due to flood and earthquake damage are not covered. This is because separate policies need to be taken out for these types of natural disasters.
How does it differ from other types of business insurance?
Businesses, ideally, need diverse types of insurance to ensure they are fully protected. For example, interruption insurance differs from other common forms of business insurance in some key ways.
Whereas interruption insurance covers lost income, a general liability policy protects your business from claims of property damage and bodily or personal injury that occurs on your premises or is caused by a product or employee.
How do I get this kind of protection for my business?
There are different ways to get interruption insurance. Sometimes, it is sold on its own; in other instances, it may be offered as an extra endorsement or as part of a business owner’s policy (BOP).
Interested in learning more? Contact Bank Midwest today to speak to a knowledgeable insurance agent near you and talk about your business’s needs.