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 (photo: ATI Restoration)
25.10.2021, 22:37

What is Business Interruption Insurance?

U.S. environmental and reconstruction services provider ATI Restoration explains why business interruption insurance is essential for managing continuity and safeguarding against downtime.

 

Running a successful company, regardless of its size, can be difficult. There are many inevitable and unforeseen challenges you can face from time to time in your business journey. From natural disasters to potential arson and even downtimes, many setbacks may interrupt your business. Such situations may be compounded if you do not have business interruption insurance.

 

This type of insurance, otherwise known as contingent business interruption insurance or business income coverage, can save the day if you encounter unavoidable circumstances. It can help cover all income losses you may incur after property damage or any other cause for unexpected business interruption.

 

For instance, supposing a fire broke out in your office building, gutting off a significant part of your office space. Now, let’s assume the fire is contained in time, but you need to do essential repairs to your office before reopening. As such, you'll have to close the business to conduct the necessary renovations temporarily. That's where business interruption insurance comes into play, allowing you to recover income losses while your livelihood is temporarily on hold.

 

However, you need to understand that the standard Business Owners Policy packages contingent business interruption insurance using the following criteria:

  • Commercial property coverage

  • General liability coverage

  • Data security breach insurance


What Is Covered By A Business Interruption Insurance?

If unexpected circumstances adversely affect your business in such a way that you have to shut it down, then an interruption coverage may help you recover operating costs such as:

  • All the profits you would be making if the business was in operation

  • Monthly rental or mortgage expenses for your business premises

  • Loans and similar debts that you need to pay when the company is closed

  • Taxes levies and fees you're required to pay during the downtime

  • Employee salaries, commissions, and allowances

  • Relocation expenses if you are forced to move temporarily as the premises are renovated

  • Any other expenses you need to meet when the business is temporarily closed

  • Training expenses for your employees to learn how to operate new equipment or machinery after a covered business loss


How Long Does It Take To Restore A Business Interruption Coverage

The time it takes to restore your business interruption insurance is the safe duration it takes for your policy to recover lost income. Typically it can take between 48-72 hours before the policy pays for the income coverage. Therefore you need to consult with your provider on the specific time your restoration period begins and ends.


What Is The Minimum Business Interruption Insurance Coverage?

Typically, a business coverage policy has a specific coverage limit, and business interruption insurance is no exception. Deciding how much of such coverage you need can be difficult. However, the best approach is to combine your monthly or quarterly gross earnings and figure projections to determine the average profit estimates and pick your coverage amount from there.

 

What you must keep in mind is that if you choose a lower coverage amount and your business interruption expenses exceed your chosen limit, you'll need to find alternative funding to facilitate extra costs. Here are some common questions you should ask yourself when determining the ideal coverage amount to choose:

  1. How long would you expect the downtime to last before your company reopens and recovers from the losses incurred?

  2. Does your business premises have up-to-date fire safety equipment?

  3. If you suffered a covered loss, can you find a suitable and conducive temporary location to put up a shop for the time being?


So What is The Average Cost Of A Business Interruption Insurance?

Several factors determine the average cost of business interruption insurance. They include:

  • Your business industry

  • The average number of workers

  • The average amount of the business interruption coverage

 

Other factors such as your business location and prevalent risks may also determine the cost of the coverage. For example, if you're operating your business in an area prone to windstorms, burglary, or wildfires, the business interruption insurance amount can be higher. If your business location is prone to natural disasters such as hurricanes, you'll have to pay even more for the coverage.


And What is Not Covered By Business Interruption Insurance

The following losses are not included in the business interruption insurance:

  • Broken or damaged items caused by a covered event

  • Damages from flood and earthquake. These should have a separate policy

  • Income not documented in your business revenue records

  • Business utilities which are typically turned off in case of a business closure

  • Infectious diseases that result in business closure


How Do I Obtain Business Interruption Coverage?

One thing about misfortunes and tragedies is that they’re, sometimes, inevitable. They can happen in the most unexpected times and unpleasant ways. It’s always advisable to prepare for the unknown and cushion your company against possible devastating losses.

 

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 (photo: Julian Portch)
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