If you’re a business owner, you might worry about how you would continue should a disaster like a flood or fire occur.
Whatever the cause might be, your business should carry business interruption insurance. It replaces income and covers certain expenses. So you don’t suffer a significant loss due to non-operation or the costs to continue operating.
We’ll explain more about business interruption insurance, how you can get it, and how it works.
What Does Business Interruption Insurance Cover?
Business interruption covers more than you might expect. After all, it exists to restore companies’ financial health.
Here is a list of some things most business interruption insurance covers:
- Lost profits
- Fixed costs, subscriptions, and operating expenses
- Moving to a temporary location
- Machinery replacement and any accompanying training costs
- Employees’ lost wages
- Taxes during recovery
- Loan payments and other recurring debt
- Miscellaneous extra expenses that support a business’s continuation
Covered losses might vary from one policy or insurer to another.
Suppose a business owner secures business interruption coverage as part of a commercial property policy. That coverage will only cover events spelled out in the main policy document.
For example, what if the property insurance does not include flood damage? In this case, the business owner will not get reimbursement in the event of a flood.
How Do You Get Business Interruption Insurance?
Do you want to buy business interruption insurance? If so, you must already have standard business insurance coverage.
Business interruption insurance is an endorsement or rider. It might be included with other insurance types, like:
- Business vehicle coverage
- A home business
- Product liability insurance
There is one way to get business interruption insurance that fits your business’s specific situation. That is forming is forming a captive insurance company.
A captive insurance company is an entity that exists expressly to insure the risks of an affiliated business. Captive insurers are popular because they provide some very appealing (and hard to find) benefits.
While securing a captive insurance policy can be tricky, it’s worth the effort for many businesses. Captive insurance is especially prized for its potential to fill gaps in existing commercial policies.
How Much Business Interruption Insurance Is Necessary?
A business’s gross earnings and projections are useful measures for predicting future profits. They can also determine the appropriate coverage amount.
Be careful not to lowball the coverage amount needed, though. Business income interruption costs might exceed the selected coverage limit. In that case, the business owner would be on the hook for further expenses.
Business Interruption Insurance Coverage and COVID-19
We’re sure many business owners wish things were different. Still, most business interruption insurance won’t reimburse policyholders if a business closes due to a pandemic. Even some of the most comprehensive policies exclude this type of loss.
Recently, there was an attempt to fight this. A Michigan restaurant owner argued that there was a civil authority provision in his business interruption policy. He felt this meant the facility’s losses should be covered.
But on July 1, 2020, Judge Joyce Draganchuk of Michigan’s 30th Circuit Court ruled otherwise. She said that “tangible alteration to a property is required to trigger business interruption coverage.”
Benefits of Insurance for Business Interruptions
Don’t gamble on whether to get business interruption insurance. Your business is your livelihood and that of any employees you might have. If you think of it this way, you’ll never see extra insurance coverage as money wasted.
Keeping up with the world of insurance—especially business insurance—can be a challenge. So be sure to keep reading the articles we post on insurance and related topics.