How Can Business Interruption Insurance Protect My Business?

How Can Business Interruption Insurance Protect My Business?
Your business needs coverage against unexpected shutdowns and suspended operations.

So many threats could force your business to suspend certain operations, or completely shut down for a period of time. Without the proper coverage, you could end up losing a ton of precious revenue, or even your hardworking crew. That’s why it’s so important to be equipped with the right business interruption insurance.

Fortunately we can help you find the right kind of business interruption insurance for your company. We will get you equipped with more than enough coverage, long before you ever need to file a claim. But before we jump too far ahead, here’s a closer look at business interruption insurance.

Since just under half of businesses permanently shut down after just one disaster, having business interruption insurance is crucial to allowing your company to get up and running again. One quarter of businesses fail within a year of a disaster, and 90% never recover after that disaster within two years. To ensure your business can recover after an unexpected disaster, speak with an independent insurance agent ASAP about getting equipped with business interruption insurance.

What Is Business Interruption Insurance?

One important aspect of business insurance is business interruption coverage. Business interruption coverage kicks in during temporary closures and suspended operations caused by covered perils. Coverage reimburses for lost income as well as employee wages during the shutdown. Business interruption coverage is extremely important for all kinds of businesses in order to stay afloat, and an independent insurance agent can help you get it.

Business Interruption Insurance vs. Business Income and Extra Expense Coverage

Before shopping for coverage for your business, it’s helpful to have a solid idea of what you’re looking for. But the names of coverage can vary slightly by insurance company, and these terms can get confusing. Business interruption insurance also goes by a different title, business income insurance. 

Extra expense coverage, on the other hand, is a component of business interruption insurance. It allows your business to be reimbursed for relocation costs and other expenses if you need to temporarily operate out of another location during a closure. Your independent insurance agent can further explain the differences between these terms.

Why Would My Business Close?

Businesses can benefit from business interruption coverage for numerous reasons. But it’s also handy to know some of the top causes of business closures across the US when shopping for coverage, to see how it may work for you.

Top 10 Property and Liability Claims

Most common Most costly
Burglary & theft (20%) Reputational harm ($50,000)
Water and freezing damage (15%) Vehicle accident ($45,000)
Wind and hail damage (15%) Fire ($35,000)
Fire (10%) Product liability ($35,000)
Customer slip and fall (10%) Customer injury or damage ($30,000)
Customer injury and damage (Less than 5%) Wind and hail damage ($26,000)
Product liability (Less than 5%) Customer slip and fall ($20,000)
Struck by object (Less than 5%) Water and freezing damage ($17,000)
Reputational harm (less than 5%) Struck by object ($10,000)
Vehicle accident (Less than 5%) Burglary and theft ($8,000)
Some of the top claims filed by all businesses are for incidences of water damage and freezing, fire, and wind and hail damage. Disasters like these could force a business to have to temporarily suspend operations during recovery, and thus create a need for business interruption coverage. Other common reasons your business might shut down include the following.

  • Fire: Even if it only destroys a part of your building, you may need to close your doors for a few weeks for cleanup.
  • Vandalism: Depending on the extent of the damage, you could find yourself creating a complicated equipment replacement strategy.
  • Equipment damage: Even the most reliable machine breaks down. It could take days or weeks to get the right part and get back on schedule.

An independent insurance agent can help your business get equipped with enough business interruption insurance to guard against these perils and much more.

What Does Business Interruption Insurance Cover?

Temporary closures can happen rather unexpectedly, so they need to be planned for in advance. Business interruption insurance often includes the following.

  • Coverage for temporary location costs: Business interruption coverage often reimburses for extra expenses necessary to operate your business out of a temporary location, including relocation costs, during a shutdown due to a covered peril, like fire.
  • Coverage for lost earnings: Business interruption also reimburses businesses for earnings lost during suspended operations.
  • Coverage for employee wages: Business interruption allows your company to keep employees actively on the payroll during temporary closures, so you don’t have to lose your team and hire new workers after a covered disaster.
  • Coverage for mortgage, rent, loan, or lease payments: Business interruption coverage allows your business to continue making these payments on time, even during a shutdown.
  • Coverage for tax payments: These can also continue to be made on time thanks to business interruption coverage.
  • Coverage for training costs: If your business needs to train new employees after a shutdown or needs to provide special training for existing employees on new machinery after a covered loss.
  • Coverage for civil authority shutdowns: Sometimes business interruption can protect your business from being shut down by a civil authority due to physical damage to a nearby company that results in a loss.

An independent insurance agent can further explain the core coverages provided by business interruption insurance, and help find a policy that works for you.

Business Interruption Insurance Exclusions

Like all other forms of coverage, business interruption insurance also comes with its own set of exclusions. Business interruption insurance works with your commercial property coverage. If a loss is not covered by the property insurance, it won’t be covered by business interruption either. 

Standard business interruption policies often exclude the following perils.

  • Damage and closures due to floods and earthquakes
  • Damage and closures due to war or nuclear fallout and explosions
  • Damage and closures due to employee dishonesty
  • Damage and closures related to routine maintenance
  • Damage to utilities, because they’re usually powered down during a closure
  • Damage to inventory, products, or supplies
  • Loss of undocumented income that’s not included on financial records
  • Closures due to communicable diseases, like pandemics*

*Unfortunately business interruption insurance will not protect your business during a pandemic. However, there are still many critical protections offered by business interruption insurance that your company needs. Your independent insurance agent can help address any concerns you may have about exclusions in your business interruption coverage. Read more here about how pandemics impact insurance.

Optional Endorsements to Business Interruption Coverage

You may decide to add endorsements to your business interruption coverage to create a more complete picture of protection. One of the most commonly added endorsements is dependent property coverage.

Dependent property coverage protects businesses against damage or destruction to a non-owned property that terminates or reduces the business’s earnings. During the COVID-19 pandemic, many businesses have experienced lost income and increased other expenses during operational suspensions. 

These entities qualify as dependent properties.

  • Buyers: The person who buys or accepts the products, goods, or services of the business.
  • Drivers: Otherwise known as anchor stores or venues that draw customers to the area.
  • Suppliers: Supply the business with its products, materials, or services necessary to its operations.
  • Providers: Otherwise known as the manufacturing location that makes the products the business carries.

It’s important to note, however, there is no coverage for a dependent property that shuts down. You can ask your independent insurance agent for more information about dependent property coverage endorsements to your business interruption coverage.

Do I Need Business Interruption Insurance?

All businesses are at risk of disaster and unexpected temporary closures. To better gauge whether you need business interruption coverage, consider how your company would otherwise recover from the following during a shutdown:

  • Tax payments
  • Continued employee payroll
  • Loan payments
  • Mortgage, rent, or lease payments
  • Lost income

Without adequate business interruption coverage, all of these expenses would continue to come right out of your company’s pockets. Not only could you eat through your profits this way, but you could also lose your team of workers if you weren’t able to continue paying them during the shutdown. Business interruption coverage is a necessity, no matter your niche or apparent risk level.

How Much Does Business Interruption Insurance Cost

Since business interruption insurance is just one aspect of a complete business insurance package, the cost of this coverage will account for only a portion of your total premium. While many factors influence the cost of your coverage, a general range is $40 to $130 monthly, and $500 to $1,500 annually.

Factors that influence the cost of your business interruption coverage.

  • Your business’s annual revenue
  • The amount of employees you have
  • Your business’s exact location
  • The age of your business’s property
  • Your business’s size
  • The risk level of your business

Costs can also depend on your area’s weather risks, so businesses located along a coast might pay more for coverage since they’re more susceptible to hurricane damage. An independent insurance agent can help you find exact quotes and figures for your area. They can also help you shop around for the most affordable policy, and see if you qualify for any discounts on coverage.

How Much Coverage Do I Need?

Coverage amounts are unique to each business and depend on the amount of revenue a company generates. How much money would be required to pay the bills if you were shut down for two days? Two months?

It’s also dependent on risk. Check on how long recovery times are for businesses that have experienced common threats in your area. You should also consider your employees. If you want to keep them on payroll while your doors are closed, you must include that in your coverage amount. 

Your best bet is to consider your gross earnings and future profit projections to determine the right amount of coverage. Ultimately, if business interruption costs surpass your chosen coverage limit, you’ll be responsible for paying the remainder. Speaking with an independent agent is a good way to estimate how much business income insurance you might need and how the claims process works.

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