What Is Business Interruption Insurance?
As a business owner, you must be ready for any kind of contingencies that might halt your business. Having the right insurance makes it easier to face such situations. One of the most sought-after insurance for business owners is business interruption insurance.
It provides coverage against the income lost due to the halting of the business by a natural disaster or other mishaps. This type of insurance is usually sold as an add-on or a rider on property or casualty policies. Under this insurance, the insurer is only liable to pay for damages for the listed damages. Let’s look into its coverage and exclusions.
Coverage under Business Interruption Insurance
- Profits: The Insurance covers all profits the business would have made if the loss had not occurred.
- Fixed costs: The coverage includes the fixed costs that are incurred while running the business.
- Relocation costs: If you find a temporary location to operate your business, the insurance covers the relocation costs and also the operating costs of the temporary location.
- Training costs: A fire or a natural disaster causes damage to the machinery. The company will then need to train its workers on how to handle the new machinery. The insurance covers the cost of training.
- Costs incurred due to civil authority closures: A government-mandated curfew or road closure near the business premises may directly affect your business as your workforce may not be able to reach the company. The insurance also provides coverage for such losses.
- Payroll costs: It might be difficult for a business owner to pay his employees when the business is shut. A business interruption insurance helps the owner to make payments and retain current employees.
- Tax costs: Even if the business undergoes loss, the company still has to pay taxes. This type of insurance covers all the tax costs of the company and saves it from penalties.
- Loan payments: A business interruption insurance covers the loan payments of the business in case of a loss.
Exclusions under Business Interruption Insurance
- The insurance is not liable to pay for the cost for any items like glass that may have broken during the disaster.
- The damages caused by floods and earthquakes are not covered under business interruption insurance.
- The insurance company won’t cover costs for the income which is unaccounted for in the business’s financial records.
- The insurance will not cover any utility costs.
- Shutdown costs incurred due to a pandemic or communicable diseases will not be covered.
How much coverage should you opt for?
It can be hard to figure out how much coverage to opt for under this insurance. Here are some questions you can ask yourself to determine the coverage needed.
- How long will it take for you to recover from the loss?
- Does your business infrastructure have up-to-date safety systems?
- Can you obtain a temporary location to restart the business?
You can also make a rough estimate of your gross earnings and projections to estimate future profits. This will help you figure out how much coverage you want.
Business interruption insurance is great to safeguard your business from disasters. It is advisable to compare the terms and conditions of various policies and only then choose the one that suits your and your business’s needs the best.