Why do I need Business interruption insurance?
Business interruption insurance can be as vital to your survival as a business as fire insurance. Most people would never consider opening a business without buying insurance to cover inventory or damage due to fire and windstorms or liability insurance for their operations.
But too many small business owners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. What if your sole location/office/center is the only means of generating revenue? How would the business owner survive? Pay staff? Earn revenue?
What is the impact to their family? Medical bills, debt, etc?
These challenges make many business owners cringe.
Hence the value of Property Insurance and specifically adding Business Interruption coverage.
Business interruption (BI) coverage is not sold separately. It is added to a property insurance policy or included in a package policy.
A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential.
What BI Covers?
Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire.
Business interruption insurance covers the revenue you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.
It is important to keep careful records and backup your records offsite, so they are not lost in the loss (fire).
Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. Resources are limited and strained after a flood or earthquake – builders and materials will take time to complete all the rebuilding that is required (you may be last on the list).
There is generally a 48-hour waiting period before business interruption coverage kicks in.
The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than an office building or law firm, for example, because of the greater risk of fire.
Also, technology has allowed for law firms and other financial services can more easily operate out of another location.
Extra expense insurance
Extra expense insurance reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period.
Usually, extra expenses will be paid if they help to decrease business interruption costs. In some instances, extra expense insurance alone may provide sufficient coverage, without the purchase of business interruption insurance.
Small business owners and their agents/brokers should opt to buy Business Interruption coverage. It today’s economy with disruptive forces and global competition- how long can a business afford to be out of business without losing market share and revenue.
How quickly will they bounce back? Will the competition pick up the market share?
Also, think about the supply chain and how it will impact your business if a supplier experiences a loss.
This coverage is a no brainer – if you are a small business owner.