Something disastrous happens. Your company’s facilities are suddenly unusable. It could be days – or months – before your business can reopen. Are you prepared to cover the loss of income until you are back in business?
Business interruption insurance, generally added as an endorsement to a property policy, is designed to put a business in the same financial position that it would have been in had no loss occurred. It can help your business recover by providing coverage for lost net income, temporary relocation expenses and operating expenses such as electricity. It can even cover ongoing expenses like payroll, which allows you to keep paying employees rather than laying them off and risking that they won’t return when the business reopens. What’s more, having funds available as the result of insurance can help you get up and running more quickly, before you lose customers to a competitor.
According to the American Insurance Association, business interruption insurance is generally triggered in the following limited circumstances:
- Physical damage to the premises that is too great for the business to operate from that location;
- A covered loss at another property that totally or partially prevents customers or employees from accessing the business; and
- A government shutdown of an area due to property damage that prevents access to the property.
Business interruption coverage relates to the destruction of your own facilities as the result of flood, fire, tornado or other occurrences. A contingent business interruption policy covers losses incurred when related businesses are affected. For example, a tsunami in Asia may shut down a key supplier who is suddenly unable to deliver essential parts to you, impacting your income even though your facility remains intact.
When considering business interruption insurance, keep in mind that it is not a blank check for every disruption that occurs at your business. Coverage doesn’t immediately kick in; most policies include a waiting period of several days after the impacting event, and coverage is not retroactive to the day of the interruption.
When considering the purchase of business interruption insurance, keep in mind that it could be the difference between your company reopening and thriving or going out of business. According to the Insurance Institute for Business and Home Safety, at least 25 percent of businesses that close due to a disaster never reopen Take steps today to make sure your business won’t be a statistic.