Editorials

Is Business Interruption Insurance Necessary for Your Establishment?

You have a successful company with staff that depends on you to keep them paid on time and help them achieve their own career goals. But, when disaster strikes, whether due to fire, equipment failures, or other disruptive events, how do you recoup lost revenue that keeps your business operational?

For millions of U.S. companies, the answer is business interruption insurance. This coverage prevents temporary closures from becoming permanent and can help your business rebuild after suffering significant damages physically and financially.

What Is Business Interruption Insurance?

Simply put, business interruption insurance will absorb expenses and lost income related to perils that disrupt your operations. This coverage usually is part of a more extensive Business Owner’s Policy (BOP). 

So, what situations would this insurance protect your business against?

  • Theft
  • Fire
  • Natural disaster events
  • Falling objects
  • Power outages
  • And more!

A great example is if a tornado damages your power grid, causing your electricity to be out for three days. You can’t serve customers in the dark, and your refrigerated products spoil. This policy would cover your lost income while your commercial property coverage would handle any ruined inventory.

How Business Interruption Coverage Can Restore Your Company

As mentioned earlier, this coverage often comes bundled with other policies as part of a larger BOP insurance option. However, all of these have standalone features creating a broader scope of protection than general on its own. 

If you suffer financial losses due to circumstances preventing your company from operating, business interruption steps in to replace that income. Below is the variety of ways you can recover using these policies:  

  • Operating Costs: When your business comes to a halt, the cost of running it doesn’t pause. This includes paying your employees, making rent payments, and more. Protect against the bills you’ll need to continue paying even though your doors are closed. 
  • Lost Revenue: Another critical loss that business interruption insurance handles is the loss of your income/profits. Whether a storm crashed through a window at your shop or an accident occurred on your premises, you’re losing money if your company has to halt operations. 
  • Tax Obligations: Much like your operational costs, any taxes you owe will still be due in full despite not having access to your business location. Interruption coverage addresses these complex situations too. 
  • Moving Expenses: If flooding makes it impossible for you to return to your commercial property, you need to set up a new location to operate. This can be a temporary move or permanent, depending on the scale of your claim and if it’s possible to save your facilities. This policy will even cover installation fees to set up your equipment in your new location. 

Do You Need Coverage?

It’s always advisable to protect your business against liabilities that could impact its success. However, you may be on the fence about whether to buy a policy or not. This is understandable if you only think about natural disasters shutting you down

The reality is that if your company has any of the below characteristics, an interruption policy is a wise thing to have: 

  • Physical location (warehouse, storefront, etc.)
  • All or part of your business takes place online
  • The region you operate in experiences dangerous conditions (floods, tornados, ice storms, etc.)
  • Dependent on supply chains 
  • Payroll will not be met if a disruption occurs
  • Nearby businesses drive customers to your company
  • One supplier supports your entire business model
  • Dangerous chemicals and materials are part of your business

Determining Your Level of Business Interruption Coverage

Business interruption policies are like any other insurance regarding protection limits. Any limit you set is where your monetary benefit caps, so it’s vital you determine how much coverage your company needs. 

You can always go with the insurer’s recommendations, but they are in the business of making money and could try to sell you more than needed. However, it doesn’t hurt to overestimate a little bit.

Ask yourself the following questions about your business when deciding what coverage limits you should choose:

  • How much income/revenue do you typically earn?
  • What income would you lose being shut for a day? A week? A month or longer?
  • How many employees do you have to pay each week? How much?
  • Is moving to a temporary location feasible?
  • What condition is your current fire system in at your facility?
  • How much are your assets worth, including equipment and property?
  • How much would it cost to start over if your business was destroyed entirely?
  • Are other vendors available for your supply chain?

When reading these questions, it’s easy to see that the best coverage for your business interruption policy should include all costs related to income, payroll, supply, and location. All it takes is one of these categories to be affected, and your entire business future could be in jeopardy. 

Yes, You Need Business Interruption Insurance

Unexpected disasters, technical failures, crime, and secondary perils, can quickly halt your normal business operations without any warning. This reality requires companies to plan for the worst and hope for the best to mitigate operational risks. 

Business insurance is the safety net you need so that anytime you have to close your doors; it’s not permanently. Having peace of mind knowing your employees, assets, and business future are protected will enable you to continue expanding and growing despite the risks you face every day. Just be sure you get a policy with appropriate limits so you never find yourself shouldering these losses out of pocket.

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