Business Interruption Insurance: What it can and cannot cover

Business Interruption Insurance what it can and cannot cover

As a business owner you may put much more than just money into your business. Your blood, sweat and tears may also go into making your business a success. That’s why insuring your investment is so important.  Business interruption insurance may also be called business income insurance and you may ask yourself, “what can business interruption insurance cover?” This type of insurance is designed to protect your business in the event of losses that could be incurred by loss or damage caused by a covered peril. Covered perils will depend on your policy type of business interruption insurance and any listed exclusions. These types of policies typically cover the actual loss a business sustains during restoration.

While this all may sound very complicated, the structure of the policy is fairly straight forward once you move past the insurance jargon. In simpler terms, business interruption insurance provides financial relief in the amount of the actual loss provided the cause of the loss is not excluded by the policy and only during the time period it takes to rebuild or restore the business to its previous operating ability.

An example of a time when business interruption insurance may be used is rebuilding a business after a disaster such a fire. If your business were to suffer damage after a disaster, your business interruption policy may kick in and cover sustained losses such as:

Loss of income

If your business is closed for 6 months, you may lose a significant amount of sales. Your insurance company may use prior accounting records to determine an average amount of monthly losses.

Operating expenses

You may still be responsible for operating expenses which may be covered with this type of policy. Again, the insurer may look at historical records to determine an average expense and reimburse you accordingly. Your insurance may also help you with loan costs and even tax payments that are due.

Relocation

If your property is no longer usable you may be forced to relocate your business while the primary location is being rebuilt or repaired. Your insurer may cover moving and operating costs for your temporary location.

Employee wages

You don’t want to lose your best employees while your business is closed. Interruption insurance can help cover payroll costs until you are back up and running.

Additional expenses

You may be reimbursed for reasonable additional expenses that are incurred as part of the loss. Keep in mind that the insurance company will stress the reasonable part of this coverage.

There are some important points you should be aware of when considering business interruption insurance.

Business interruption insurance won’t cover everything.  It is not typically sold as a stand-alone policy. Because business interruption insurance is usually part of a broader business insurance policy, make certain that you understand what is and is not covered and where your policy starts and ends. For example a broader policy could exclude flooding from coverage, so your business interruption insurance will also not cover damage from floods.  Additionally, there are things that this type of policy won’t extend to. Flood damage and earthquake damage are good examples of items that are usually not covered unless they are specifically added to your policy or purchased additionally.

Business interruption coverage will only reimburse you up to a policy limit. Carefully consider what it would cost you to relocate your operations and be out of business if disaster struck. Use this cost to determine your best policy and coverage amounts.

This type of coverage stresses financial protection during the time of restoration.  Your insurance company will only be held liable for the reasonable amount of time it would take to rebuild, repair or restore your property. This period of time starts at the time damage was incurred and ends when your property has been reasonably restored.

There may be a waiting period. Many policies have mandatory waiting periods which can very from three days to three months. Make certain you know if your coverage includes a waiting period and what this time frame is. You should also have some savings set aside to cover this waiting period, just in case.
An important part of being a business owner is protecting everything you have built. Business interruption insurance provides coverage for you, your property, your income, and your employees in the event of unexpected disaster. Choosing your policy and understanding your coverage are imperative parts of making sure you have the insurance you need.

We offer the opportunity for you to work with experienced business insurance agents that will be detailed and take the time needed to ensure you understand your coverage. Our individualized attention ensures you can benefit from all aspects of your business coverage. We work with many different insurers which gives us the ability to get you coverage at the best possible price. We have made it our business to protect your business.

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Steve Gebhardt

Gebhardt Insurance Group was honored by AAA Insurance for being the top New Policy Agency in Arizona for 2013 and achieving the "Emerald Achievement Award."

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