Are You Covered In Case of a Business Interruption?

By on June 11, 2013

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If a fire or natural disaster caused your business facility to be temporarily unusable, what would you do?

There is more to protecting your business investment than purchasing insurance coverage for the physical assets of the business. Owners, shareholders, and financiers expect an income stream in return for the risk of funding and operating the business – these expenses can be protected.

Traditionally, Business Property Insurance does not cover losses of gross income or profit when a business is forced to shut down. Business Interruption Insurance is a vital component of business continuity and risk management.
In simplest terms, a business interruption policy is designed to support your business during a insured period of loss. It has a carefully thought out formula, that is well tested to achieve this stated aim of putting the business back where it ought to have been financially.

Business Interruption Insurance

  • Compensation for lost income if your business is forced out of its facilities as a result of insurable disaster-related damage under a Commercial Property Insurance policy.
  • Covers lost profits based on previous financial records during normal operating periods
  • May cover operating expenses, such as utilities and rent, that must be paid even though business temporarily closed
  • May cover operating expenses for a temporary location while repairs to the permanent location are completed

Building a Business Interruption Insurance Policy

  • Business Interruption Insurance is an additional coverage which can be added to a Property Insurance policy or Business Owner’s Policy(BOP)
  • Policy limits should be calculated to cover the length of time to rebuild the business facilities. Generally, a business may be closed for several days before coverage begins and you will not likely receive retroactive payment for those days
  • Price of coverage depends on the risk of disaster to the premises. This may depend on the business location, nature of the business and how easily the business could function at an alternate location on a temporary basis
  • Business interruption insurance premiums are deductible as ordinary business expenses
  • This type of policy pays out only if the cause of the business income loss is covered in the underlying property/casualty policy The amount payable is usually based on the past financial records of the business

Business Interruption Insurance begins from the date of the loss or damage, and extends to when the business’s facilities and profit levels are back to previous levels. There is a cap set on this known as the Indemnity Period, which is chosen by the policyholder when the cover is taken out and is recorded in months on the Policy Schedule. Be sure to choose the best co-insurance percentage so that your policy doesn’t run out before your business is back to normal.

Alternatives to Business Interruption Insurance

Extra Expense Insurance may also be added to a policy in order to cover the amount needed to avoid having to shut down while the permanent location is being repaired. This coverage reimburses for expenses that arise on top of normal business expenses, but are not covered by Business Interruption Insurance. Depending on the disaster, Extra Expense Insurance may be sufficient enough to provide financial relief without having to utilize Business Interruption Insurance.

Insurance experts estimate that Business Interruption Insurance is one of the most useful coverages available, yet business owners often overlook it. Since Property Insurance only covers the cost of physical loss or damage, Business Interruption Insurance is invaluable in covering the loss of income while the permanent business location is being repaired.

Speak with a trusted insurance agent or financial adviser to calculate and purchase an affordable Business Interruption policy in addition to your Commercial Property Insurance.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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