25 percent of businesses that close due to a disaster do not reopen! Your business doesn't have to be one of them!
Business interruption insurance can help protect your business recover from a disaster or other loss!
What is Business Interruption Insurance?
Business Interruption Insurance, also known as Business Income Insurance, covers the loss of income that a business suffers after a disaster. Whether it's a disaster caused by a fire, a hurricane or some other catastrophe, business interruption insurance is designed to help replace lost or reduced income or profits suffered by a business after a covered loss.
The loss or reduced income may be due to a disaster related closing of the business or it may be due to the rebuilding process after the disaster. The loss may also be due to actions by civil authorities such as government issued curfews or street closures related to a covered event. Business interruption insurance may also help you pay for extra expenses needed to keep your business running because of the loss.
How is Business Interruption Insurance Different than Business Property Insurance?
Business property insurance covers the physical damage to tangible items your business needs to operate. These include the buildings used by your business, equipment, contents and inventory. Business interruption insurance covers the profits that would have been earned if the disaster had not occurred.
Can I Buy Business Interruption Insurance Separately?
No. Business interruption insurance is not sold as a stand-alone policy. Business interruption insurance is added as part of a business' primary insurance policy such as a commercial property insurance policy or a comprehensive package policy such as a business owner's policy (BOP). Since business interruption insurance is included as part of a primary policy, it only takes effect if the cause of the loss is also covered by the primary policy. For example, profit losses due to fire are only covered if fire damage is included in the primary policy.
What Does Business Interruption Insurance Typically Cover?
The following are typically covered under a business interruption insurance policy:
• Profits that would have been earned if the disaster had not occurred.
• Operating expenses and other fixed costs still being incurred by the business after the disaster.
• Use of a temporary location for your business and may even include extra expenses for moving to, and operating from a temporary location.
• Training costs associated with providing training to the operators of the machinery replaced by the insurer after the disaster.
• Reimbursement for reasonable extra expenses beyond the fixed costs that allow the business to continue operation while the property is being repaired.
• Loss of business due to closure by civil authorities such as government issued curfews or street closures related to a covered event.
• Other causes of business interruption that may be included with business interruption insurance include interruption to business due to prolonged street repairs or highway construction and business interruption due to downed electric transmission lines such as after a hurricane.
How Long of a Period Does Business Interruption Insurance Cover?
Business interruption insurance coverage extends until the end of the business interruption period determined by the insurance policy. Most insurance policies define this period as starting on the date of the covered incident until the damaged property is physically repaired and returned to operations under the same condition that existed prior to the disaster.
What is Contingent Business Interruption Insurance?
Businesses can also purchase contingent business interruption coverage in addition to the standard business interruption insurance. Contingent business interruption insurance covers losses due to damages suffered by major suppliers or customers, thus causing losses to the insured business. This is a common occurrence following a natural disaster such as a hurricane. Businesses that depend on e-commerce can also suffer losses if their website hosting service is stuck by a disaster. The insured business does not have to suffer direct damage to their own facility for contingent business interruption insurance to take affect.
How Much Coverage Do I Need?
Different businesses have different needs when it comes to business interruption insurance coverage. (An Alliance Commercial Insurance Specialist can work closely with you to determine the amount of coverage that is right for you and your business.) Begin by envisioning how your business would be affected by a catastrophe.
Here are some important factors to consider:
• Profits that would have been earned (based on prior months' financial statements).
Your pre-loss earnings are the basis for reimbursement under business interruption coverage.
• Operating expenses and other fixed costs still being incurred by the business (based on historical costs).
• Consider how likely is it that a covered loss will occur such as hurricane frequency and how vulnerable your business
is to disasters from hurricanes to fires. For example, are sprinkler systems up to date and functional?
• How long would it take to get your business up and running after a serious disaster?
• Is comparable commercial space readily available in your area and how long it would take to find a suitable location?
• Do you want to keep workers on the payroll while you rebuild your factory or store by having business interruption insurance
reimburse you for their salaries?
These and other factors must all be considered when purchasing business interruption insurance. For a thorough analysis of the all your business' insurance coverage needs, contact a commercial insurance specialist from Alliance Insurance Agency Services, Inc. We have commercial insurance specialists who are always ready to help make sure your business is protected.