If you own a small business, you probably already have insurance to cover your building and its contents if a tornado, hurricane or fire comes ripping through. But, do you have insurance that covers the necessities while you are working to get your business back up and running? That is where business interruption insurance kicks in.
What is Business Interruption Insurance?
Let’s say a tornado appears one day and does extensive damage to the building your business is in. You cannot use that building until repairs are made. Or the damage is so bad, the building may need to be demolished. Under these circumstances, how do you get your business back up and running as soon as possible?
Business interruption insurance will compensate you for the income your company loses because you cannot use your business premises. They will also help cover the operating expenses (utilities, for example) that keep on going, even if you are not on-site doing business. The insurance helps keep you going financially while you are either repairing your old premises, or relocating to a new place.
This kind of insurance is not sold as a separate standalone policy. It is an addition to your property insurance policy, or sold as part of an insurance package. With most policies, there is a minimum 48-hour waiting period between the time you purchase the policy and the time it goes into effect. So, get it before the next tornado appears on the horizon.
What is covered and what is not?
Business interruption insurance provides two kinds of coverage: business income and extra expenses.
- Business income: The policy covers the net income that you would have earned if the disaster did not occur. The amount the policy pays is based on your projected income from the time prior to the disaster. It also provides coverage for ongoing expenses that do not go away, including leases, mortgages, payroll, and employee benefits.
- Extra expenses: While waiting on your original premises to undergo repairs, you will likely want to get business up and running in a second location. Extra expense coverage helps cover the extra expenses involved, including renting a temporary location, equipping the space, and operating that space.
Now, business interruption insurance does not over everything. Here are three examples:
- Loss of utilities is not usually covered with this kind of insurance. So, downed power lines and damaged water mains would require an extra rider.
- If the property insurance does not cover a particular event, the business interruption policy will not cover it either.
- Cyber attacks are generally not covered by business interruption insurance. There has to be physical damage covered by a property policy for the interruption coverage to kick in. You can get special riders and polices to cover cyber events.
How much coverage do you need?
One of the biggest mistakes small businesses make when buying interruption coverage is not getting enough coverage.
Take a moment to envision what would happen if your area got hit by an extensive natural disaster. Your office, warehouse, or store sustains extensive damage. The area around your place of business is also heavily damaged. Utilities are down all over the place. Roads are blocked with debris. Many buildings are also extensively damaged.
You will need coverage to help you get the business back up as soon as possible.
Here are some things you should consider when calculating your coverage:
- The costs that will not stop even though the building is damaged (leases, mortgages).
- The cost of keeping your employees on the payroll while you relocate the business. Don’t forget to include taxes, insurance, and benefits in that number.
- The additional costs of renting a new space. You may find rent costs going up when there is extensive damage in the area.
- Add in the cost of storage space while your premises are being rebuilt. Your rental space may not be as big as your original premises.
- Note any potential disruptions in your supply chain due to this kind of disaster.
There are other things to consider when purchasing a policy.
- Buy enough coverage for a big disaster – When buying a policy assume that the worst happens. Many policy holders assume they will need coverage for only a few weeks at most. In the case of a major disaster, it could be more than a year for full recovery.
- Buy coverage with a high limit per incident – Some policies limit the amount paid per event to a number below $50,000. If your physical premises are destroyed, and you have to relocate and rebuild your business, $50,000 won’t cover much. Make sure the payout per instance is sufficient.
Business interruption insurance is a necessity for most businesses. Just make sure you have enough coverage in place before disaster happens.
Has your business suffered any kind of damage? Even if you have insurance, it can still be a tricky process to navigate. The public insurance adjusters at Commercial Claim Pro are experts at negotiating and settling claims for the highest amount possible. Stop stressing and call for the help you need at (877) 877-6612.
Photo Mike McCune | Used under Creative Commons image attribution license 2.0