What is Business Interruption Insurance?

March 09, 2012

What is Business Interruption Insurance?

It’s probably one of the most valuable coverages that business owners should include in their small business insurance policy. But it’s one of the most overlooked as well. That’s because most entrepreneurs aren’t aware that when disaster strikes it’s not the cost of the physical damage to their premises that will really hurt their small business, but the amount of income they lose because they’re out of action.

What does it do?

Imagine that your office has a fire and your business is forced to shut down for a time. Not only is your premises damaged, but now you can’t work. Who’s going to put things right? Well, your insurer will, provided you have Business Interruption (BI) coverage as part of your property or business owners insurance.

How does it work?

Your insurer will pay you the income your company would have made during the period it’s out of action due to a covered loss and the time it takes to get back to normal. You will also be compensated for the normal operation expenses (for example, rent, utilities) you incur even though your premises are unusable. If you have to move to temporary premises your insurer will also reimburse you for the additional reasonable costs you incur. Your insurer will also pay most of your employee payroll for a period of time. Most business owner insurance policies have a waiting period before business interruption coverage applies, typically measured in hours. This means your business has to be down for a period of time before the coverage kicks in. Think of this like any other insurance deductible, but measured in time instead of dollars. Also, loss payments are usually capped – either in a stated dollar amount or in the amount of money payable for a specified period of time during which your business is down.

Remember, business interruption coverage can be a life preserver for your business. Don’t skimp on your small business insurance – it could take a long time for your firm to recover from a disaster, and while you recover you’ll need the money – and assistance – that Business interruption insurance provides.