Business Interruption Insurance: Explanation Of Business Interruption Insurance

If your business experiences an event outside your control and you and your employees have to temporarily stop operations, business interruption insurance, also known as business income insurance, is there to help you get back to work. In the wake of recent hurricane disasters and 9/11, business insurance has undergone some major changes.

Understanding business interruption insurance will help you get the best coverage for the best rates.

  1. A common misconception is that property insurance will cover all your losses. It will not. It only covers the expenses to repair physical damage; business interruption insurance covers you for the losses and expenses incurred from having to shut your business down for a period of time.
  2. Business interruption insurance is actually an addendum to your property or casualty insurance policy or part of a comprehensive package. It is not sold separately. This is because business interruption insurance is only for companies that rely on their physical location and equipment for income.
  3. Some policies have a waiting period of up to a week before your coverage begins; however you can exchange a waiting period for a deductible with some insurance companies.
  4. There is a limited period of time to make your repairs. Make sure you indicate a realistic amount of time you need to get back on your feet.
  5. A business interruption claim usually consists of restricted access to the property due to physical damage to the company's property or to a neighboring property. The policy will have a list of perils that are insured, and there must be a necessary and immediate interruption of your business operations.
  6. Begin documenting immediately following an event in order to provide your insurance company with an accurate picture of the losses and expenses you have incurred.
  7. If an interruption in business precipitates a major change in your business strategy, many insurance companies will support these changes with proof that the changes will prevent future business interruptions.
  8. Business interruption insurance calculations do not always conform to common accounting practices; consult an accountant that specializes in this type of insurance.
Business Interruption Insurance: Explanation Of Business Interruption Insurance

Every day your business is closed is another day without income. Business interruption insurance will get you what you need to get back to business faster.

Business Interruption Insurance: What Would Business Interruption Insurance Cover?

If your business is manufacturing widgets and your widget-making machine has suffered an equipment failure, you have to send everyone home. Not only do you need to repair your machinery, there could also be other property damage. Your property or casualty insurance will cover your repairs, and business interruption insurance will help you recover from loss of income and any extra expenses incurred due to the physical damage your business has suffered.

Business interruption insurance is for companies that have physical property, equipment and merchandise because it is based on your property insurance damage claim. Your business interruption insurance will cover many different losses and expenses due to many different physical events and perils. This includes natural causes such as hail, wind and rain, and other events such as vandalism and fire.

  1. When your business sustains damage that makes it necessary to stop operations, you have immediately lost the income your business requires. Business interruption insurance will help you sustain a normal income while you are under repair.
  2. If your business incurs physical damage that impedes customer access, or your access to your customers, you can be covered for these losses of income until the situation is rectified.
  3. Business interruption insurance will cover your normal expenses, such as your rent or mortgage, utilities, and advertising, for a specified period.
  4. If you can resume business in a temporary location or with temporarily rented equipment, your insurance will cover these added expenses.
  5. Contingency business interruption insurance can cover the expenses incurred if your business operations are contingent on a supplier and he suffers property damage or even a government embargo that temporarily renders him unable to deliver his goods.
  6. Your business interruption insurance can also include a clause to cover you for losses incurred from the effects of war.
  7. Your business losses can be recovered if you suffer a work stoppage due to an interruption in your utilities, such as electricity, water and gas, or services such as refrigeration or telephone.
  8. You can receive payroll coverage during a business interruption in order to keep your valuable employees from finding new employment while repairs are being completed.

Business interruption insurance will ensure your normal level of capital continues to flow through your business. It will sustain you until you can claim business as usual.

Business Interruption Insurance: Rates For Business Interruption Insurance

Business interruption insurance can rescue you from daunting losses and expenses due to a closure. Having a budgeted and expected reasonable insurance rate allows you to continue business as usual. A huge and unexpected expense from damage and loss of income can seriously hurt and even destroy your business. There are many factors that contribute to your insurance rate.

Business Interruption Insurance: What Would Business Interruption Insurance Cover?
  1. Your business interruption insurance can have a long list of inclusions, exclusions and limitations. An “all risk” policy will cover you for everything and list a few exceptions. Or you can opt for a policy that lists only the events and perils it will cover. Your rate can be dramatically affected by the risks you choose to cover.
  2. Your indemnity is based on your business's financial records for the three years leading up to the event. It will be calculated using your financial statements and projections, as well as inventory and loss estimates. Keep your records up-to-date and you can receive a realistic indemnity in exchange for your monthly insurance rate payments.
  3. Update your business interruption insurance every year. As your business grows, so do your needs. You may find you need to add some new coverage or perhaps you have eliminated a risk and no longer need coverage for certain events. Work with an expert in business interruption insurance to assist you in making these decisions.
  4. The location and nature of your business affects your insurance rate. For example, if your risk of fire is high, you may end up with a higher rate. You can lower this rate by reducing the risk of fire through installing safety measures as well as routine maintenance and repair to your inherent fire hazards.
  5. The ability to perform business operations from a temporary location can affect your business interruption insurance rate. If your business has special requirements, such as refrigeration, it could be more difficult and therefore, more costly to find an appropriate temporary location.
  6. You can add an indemnity extension clause to your policy for a slightly higher rate. Sometimes your losses continue even after your repairs are completed. For example, it may take some time for your restaurant's clientele to return to your establishment after a prolonged closure.

Knowing your business and its inherent risks will allow you to build a business interruption insurance plan with a great rate and great coverage.

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