Business Interruption Insurance
Embroker helps you get business interruption insurance to protect your company if it is forced to close down for a period of time as the result of a peril that made your business property unusable.
What Is Business Interruption Insurance?
Business interruption insurance helps replace the lost income and other expenses if a business is forced to temporarily shut down due to a covered peril that affects its commercial property. Covered perils typically include natural disasters such as fire, wind, or lightning, as well as theft and falling objects.
Business interruption insurance (also called business income coverage) is typically bundled together with general liability and property insurance into a Business Owners Policy, also known as BOP insurance. However, it can also be purchased under a more comprehensive, dedicated property insurance policy.
What’s the Difference Between Business Interruption and Extra Expenses Coverage?
Extra expenses coverage is often confused with business interruption insurance because it is often purchased along with business interruption insurance. However, the two policies cover different types of things.
The name basically gives a pretty good indication of what extra expenses insurance covers, taking care of some of the “extraordinary” expenses that would be associated with a situation in which business interruption insurance would be needed.
Deciding to move your business to another location and reopening while you wait for your regular location to be repaired is one of the most common examples in which an extra expenses policy would help.
An extra expense policy would cover the costs of moving to a temporary site, including renting new property and equipment, paying employees overtime to help realize the move, and hiring new employees to work at the temporary location.
If you run a type of business that can be relocated easily, extra expenses insurance can help you to continue making money at a temporary location while you are waiting for your permanent location to reopen.
What is Contingent Insurance?
Another type of business interruption and extra expenses insurance that exists is called contingent insurance. This type of insurance protects you in the case that one of your key partners is forced to close down operations.
For example, imagine you are running a chicken wings restaurant and the factory of the company that supplies all of your hot sauce burns down. Contingent business interruption and extra expenses insurance could help keep you afloat financially until your partner’s factory is back and running.
This type of policy provides you with financial support in the event that you lose a manufacturer, supplier, or even a client that your business’s bottom line relies upon heavily.
Contingent business interruption insurance would pay for lost profits and wages until their property is restored. Contingency extra expenses insurance would pay expenses that would enable you to continue your operations with another partner until your old one is ready to return to action.
When insurers write contingent policies, the property of your valued partner needs to be listed as a dependent property. Obviously, the dependent property listed in the policy needs to be owned by a third party that is vital to the work of your company.
What Are Eligible Dependent Properties?
There are four entity types that qualify as eligible dependent properties:
- Contributing Location: This refers to locations that supply your business with things that you need to run your company, such as materials or parts that you need to create and provide your product or service. If your suppliers need to temporarily close and you cannot offer your product or services without them, business interruption insurance will provide coverage.
- Recipient Location: If you have a sole or very major buyer that your business relies on and they temporarily close down and don’t need your services or products for a period of time, you can receive coverage. The buyer is referred to in contracts as a recipient location, meaning that it’s a location that buys a very significant amount of products, goods, or services from you.
- Manufacturing Location: This location can be looked at as a provider; a location that creates or manufactures something that your business needs. This location cannot be owned by you since it is categorized as an outside entity that your business is dependant on.
- Leader Location: This is an anchor store usually; a popular or well-known location that brings people to your area. It can also be a popular restaurant or even a sports or concert venue located near your business. If your business depends on the traffic that these types of bigger entities create, you could be covered by business interruption insurance if the leader location that you rely on is forced to shut down temporarily.
Who Is It For?
All businesses should invest in business interruption insurance, but some need it more than others.
This coverage is crucial for any company that relies on its physical locations and assets (equipment, machinery, or buildings) to conduct its operations. This includes businesses such as brick and mortar retail stores, restaurants, or cosmetic salons that need their physical locations to generate revenue.
Additionally, businesses based in locations that have been historically exposed to extreme weather patterns or natural perils should look to secure their peace of mind with the right business interruption coverage, regardless of industry.
Do you need business interruption coverage? You can get your risk-free business interruption insurance quote with Embroker in just a few minutes.
Why Do You Need It?
The potential costs of having to shut down your operations for an extended period of time could be staggering. Paying employees who can’t work, lost profits, damaged reputation, and the cost to relocate or open temporary locations may seriously endanger even the most financially stable businesses.
Without comprehensive coverage in place, many businesses that rely on their physical property and assets would be forced to permanently close their doors in cases of fires, floods, or other covered perils.
What Does Business Interruption Insurance Cover?
Business interruption coverage is very closely tied to your commercial property insurance. This means the perils covered by your property insurance policy will also be covered by your business interruption policy.
Let’s take a look at what costs you can expect your business interruption policy to respond to:
Loss of Revenue
Business interruption insurance will reimburse your business for lost revenue during the temporary shutdown. Typically, the policy will reimburse companies for up to a year. This is a crucial aspect of the coverage, as it allows businesses to stay afloat during temporary setbacks that otherwise could force them to permanently close their doors.
Staff Wages
Even though they are forced to shut down temporarily, most businesses will want to maintain their workforce during difficult times. Business interruption insurance will respond and cover your payroll while your business isn’t generating revenue. Typically, you can expect to be covered for up to a year.
Rent Or Lease Payments
Just because your business is temporarily closed, it doesn’t mean you can ignore your landlord and not pay them. Business interruption insurance will cover your rent or your lease while you’re working on reopening. If you have purchased the property and are have mortgage payments, those will be covered as well.
Loans
If you have business loans taken out before the shutdown, your ban will still expect you to pay them – even if you’re not making any money. This is where business interruption insurance can kick in and ensure you don’t miss any payments.
Taxes
Even if your business is temporarily not generating revenue, you’ll still have to meet your tax obligations. Business interruption insurance will ensure that you have the necessary funds to pay the taxes you owe. And just as is the case with most business insurance policies, a business interruption policy is also tax-deductible.
Extra Expenses
As we already mentioned, you can purchase extra expenses coverage to add to your business interruption policy in order to cover the costs required to move your business to a new location temporarily. This covers rent for the new space, renting equipment, hiring new employees if necessary, and providing them with training as well.
Training
If your staff need training in order to learn how to operate new equipment after a covered loss, business interruption insurance will cover these training costs as well.
The Cost To Relocate
If you’re forced to relocate your business due to property damage, business interruption insurance will respond and help cover the moving costs.
What Is the Period of Restoration?
It’s important to remember that the insurer is only liable for losses during the restoration period. The restoration period is the amount of time that it will take you to rebuild or replace all of your damaged property. It is commonly defined by the insurer within your contract.
The period of restoration begins on the day that the damage occurred and it ends when the business is expected to be ready to resume its regular operations. It’s also important to note that the restoration period doesn’t necessarily have to end when the policy expires.
It’s only important that the losses occurred during the policy period in order for coverage to be activated. Businesses can easily obtain a business interruption endorsement in order to provide coverage for the entire period of restoration if the policy expires before the business is ready to reopen.
Typically, the restoration period covers up to 12 months of losses. However, some insurers might cover up to 18 or 24 months.
How to File a Business Interruption Claim
- Contact your insurance agent or broker as soon as possible. If theft or burglary is responsible for your business’s need to close down temporarily, make sure that the police have been notified immediately as well.
- Check your insurance policy to see what you need to do. Your policy will let you know what responsibilities your business has towards your insurer after a loss has occurred.
- If your property is damaged and immediate repairs are necessary, take steps to secure the property. Make temporary repairs and make changes that can go towards preventing further damage. If you take damaged parts or areas away from the property, keep them so that the claims adjuster can see them if necessary.
- Get bids from several companies when trying to see who you’re going to hire to repair or replace your business property. Talk to at least two or three different companies before making a decision.
- As already noted, make sure that you can provide proof of income when filing your business interruption claim. Make sure that you have a detailed list of income generated before and after the loss, as well as expenses that will continue while the business is closed, such as wages, rent, advertising, and more.
What’s Not Covered?
Business interruption insurance is designed to only provide your company with the means to recover from the financial implications of a temporary shutdown caused by property damage.
Losses covered by other policies won’t fall under the business interruption coverage. Your property insurance policy will cover the actual material damage to your commercial property – the interruption coverage will only pay for the financial losses related to the shutdown. Similarly, claims of damages and injuries to third parties that occur due to a covered peril will be addressed by your general liability policy.
It’s also important to note that business interruptions not caused by property damage, but are a result of other factors, won’t be covered.
Additionally, the interruption to your operations needs to be significant for the policy to respond to it. Being forced to shut down for a few hours due to a small, localized fire probably won’t be covered.
Every business interruption policy contains somewhat different language, which is why it’s very important to go over the contract in detail with an expert broker so that you know exactly what’s covered and what isn’t covered by your policy.
Exclusions
Typically, business interruption insurance does not cover the following:
- Losses from damages that are not covered by your commercial property policy: Every property policy has its own exclusions, such as earthquake damage, for example. If your property policy does not cover a certain peril, neither will your business interruption policy.
- Closing your business voluntarily: If you decide that you do not want to continue with your business after serious damage, you will not be able to collect benefits under your interruption policy. The policy is only activated if you decide that you want to repair and reopen your business.
- Business income that’s not documented: Only documented income will be reimbursed. The most important thing your business needs to do is to be able to prove that your business is suffering economic damage because it has closed. This proof usually relates to things such as invoices, receipts, tax documents, bills, and any other types of documents that can prove how much money you are losing by being closed and what expenses need to be covered during this time. Make sure to consult your insurer in the event of a claim to find out exactly what they would like to see as proof of income and expenses.
- Short and partial interruptions: You must lose complete access to your property in order for your business interruption coverage to kick in. If your customers can still access a part of your property, even if their access is limited, your policy will not be activated. Therefore, partial interruptions are not covered. Short interruptions that are not covered commonly include closures caused by utility issues, such as downed power lines. Power outages are very common occurrences and in most cases, electric companies can easily restore power to any business relatively quickly. Most policies will not provide coverage if your business is not forced to close down for at least a period of 72 hours.
- Utility expenses: If your business is still using its utilities, such as electricity, gas, and water, it is not entirely shut down. Most businesses that suffer enough damage to close down their operations for a period of time will also shut off their utilities.
What Does Business Interruption Insurance Cost?
The cost of your business interruption policy will be intrinsically tied to the value of your commercial property since the policy is so closely tied to your property insurance and the perils that it covers.
While every business is different, business interruption insurance will typically cost between $50 and $150 dollars per month on average for coverage for small businesses that are not high-revenue companies or operating in a high-risk industry.
Like with any insurance product, several external and internal factors influence business interruption insurance cost and will affect your premium considerably:
Property value
The value of the commercial property that the business owns or leases will affect the premiums. The higher the value of the property, the higher the premium. But if a business with valuable property is forced to shut down, it will also receive a larger payout.
Industry
Certain industries have a higher risk of property damage, and business in them will have to pay more. For example, a restaurant will generally have to pay more for business interruption than a tech startup.
Revenue
Because businesses are compensated for the revenue they lose during a temporary shutdown, companies with higher revenue will generally have to pay higher premiums.
Location
Companies in areas that have historically unpredictable weather or exposure to perils will have to pay more for coverage.
Payroll
Since business interruption coverage will typically cover payroll for up to a year, a business that pays out more in salary will also have to pay more for coverage.
Why Get It With Embroker?
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Affordable.
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