Understanding Business Interruption Insurance

June 7, 2022
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If you own or run a business, you already know how important it is to have insurance — especially liability insurance. But what do you do if an insurance claim forces your business to close temporarily? Revenue drops to zero. Often, payroll still has to be paid. Your rent or commercial mortgage is still due on the 1st. Utility bills and loan statements keep rolling in. Seasonal slowdowns are one thing but when your revenue drops to zero unexpectedly, everything you have worked to build may be at risk.

Fortunately, business interruption insurance has been developed to help. This coverage pairs with your business property insurance or business owners’ policy to provide a lifeline when revenues are affected by a claim. Your coverage can replace the revenue you will need to protect your business’s future.  Business interruptions can happen from a number of covered claims, like a lightning strike, a fire, storm damage, and more. Keep in mind, in order for this kind of coverage to be triggered, the cause of loss has to be an insured peril and the incident involves direct physical damage to the premises.

Here is a real-life example. Let’s say you own a new phone store. Business is growing and you are carving out a niche for yourself in the local market. You are located on a busy road. Visibility is great. Demand is high. There is every reason to be optimistic about your business’s future.

One day, a car veers off the road — ironically, possibly caused by a cell phone distraction. The vehicle crashes through the front of your store breaking the window, door, showcases, and even damaging a wall. Fortunately, nobody is seriously hurt. And thank goodness you have property insurance. The repairs and damage to the showroom are covered.

However, you might be closed for a while — especially since a wall was damaged as well. In this real-life example, the wall was a load-bearing wall. Engineers from the township schedule a seemingly endless array of meetings, surveys, and inspections. Basic repairs can be completed in days but, in this case, the process could take weeks — or even months. You are out of business until the township says the building is safe. Even your neighbouring businesses are affected.

When you started your business, you wrote up a business plan. In your plan, you detailed your business goals, expected revenues, expenses, and other factors. If you were thorough, you also detailed the challenges your business will face and how to overcome these challenges. Business interruption insurance is designed to cover the risks that are impossible to predict — the kind that was not addressed in your business plan but that happens to real businesses every day.

Reach out to your broker to learn more

If you already have business property insurance or if you are thinking of starting a business, reach out to your broker to learn more about business interruption insurance. Coverage may be more affordable than you think, and your business will be better protected against the chaos that life sometimes sends our way.

What is Business Interruption Insurance?

How well would your business fare if you lost revenue for a few weeks, or even a month or longer? This situation is more common than you might realize when disaster strikes, even for seemingly small disasters.

Let’s say you have a retail store. The location is fantastic, right at a well-travelled intersection where high visibility provides built-in advertising. One sunny afternoon, you hear screeching tires and then the crash as glass and display racks go flying. Now there’s a car in your showroom, leaking fluids. Fortunately, no one is hurt but it will take a while to clean up the mess. Not only do you have to repair or replace everything that was damaged, but it’s likely that you’ll be waiting on construction permits and structural engineers to be sure the building is safe. You’re out of business for a while.

This is a dramatic example, but business interruptions can happen from a number of covered claims, like a lightning strike, a fire, storm damage, and more. Business interruption insurance can protect your business in these situations by reimbursing your business for the income you would have received if it were business as usual.

Much like other types of insurance, you’ll often be able to choose between named peril and all risk coverage, with the latter providing more complete coverage. Your policy may also protect you against related expenses, like operating out of a temporary location.

Discuss your coverage needs with your broker. Some business owners choose limited business interruption insurance while others opt for extended business interruption insurance. Extended coverage provides more complete protection because the coverage doesn’t end when the repairs are complete. Chances are good that the mishap cost your business money in the form of ongoing slowed sales. Just like it took some time to rebuild your business location, it may take some time to rebuild your business to its full performance.

Business interruption insurance is usually sold as an add-on to your business property insurance policy. The two coverage types work together to protect your business in ways that one type of coverage alone can’t. In both cases, the coverage protects both your business and your savings.  Coverage could protect the client from having to spend their savings.  Connect with your broker to learn more.

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