Business Interruption Insurance Explained

December 5, 2016

business interruption insurance maGot big plans for your business in 2017? If you don’t have business interruption insurance already in place, you should put it at the top of your list. Here are a few reasons why:

Most business owners have (or least know about) general liability insurance to protect their property. But only 37% are familiar with business income coverage, which protects against financial losses when a business is unable to operate.

After Hurricane Sandy, 52% of the small businesses surveyed in Connecticut, New Jersey, and New York reported lost sales and lost revenue. Roughly 75% had to close their businesses for a period of time following the storm.

According to Chubb data, 50% of businesses never return to the marketplace following a major disaster. Of those that do, half go bankrupt within three years. The ones that survive plan their response to a disaster before it strikes…

The following post looks at some common questions surrounding business interruption insurance. If you don’t see the answer you’re looking for, contact us directly. We’ll be glad to explain BI benefits and options.

What is business interruption insurance?

Business income coverage is commercial property insurance that covers a loss of income suffered by a business when damage to its premises (by a covered cause of loss) creates a slowdown or suspension of operations. Business income coverage kicks in during the time period required to repair or replace the damaged property. It may also be extended to apply to losses suffered after completion of repairs for a specified number of days.

What is extra expense coverage?

Extra expense coverage insures against costs that are reasonably incurred to avoid or minimize a period of business interruption (e.g. securing a temporary work space).

Who needs business income insurance?

Every business should consider BI coverage as a vital piece of its insurance planning and risk management strategy. In today’s world, business interruptions can result from a variety of events: storms, fires, theft, malware attacks, etc. In fact, business and industrial risk experts say the severity and frequency of BI claims are on the rise.

What are the primary causes of business interruption?

Some leading causes of business interruption, according to AGCS’s Global Claims Review 2015 Report, include: fires, storms, machinery breakdown and faulty designs/materials (manufacturing), strikes, riots, floods, and power outages.

What does BI coverage include?

Business income coverage typically covers lost profits, normal operating expenses (e.g. rent and utilities), and other costs associated with service interruption. In many cases, BI coverage includes payroll expenses, as well, so your employees can continue to get paid.

What happens after business operation resume?

If you opt to select extended business income coverage, you may receive further protection against lost income even after your operation is restored.

How much BI coverage is enough?

BI coverage is no place for guesswork. Unfortunately, according to Chartered Institute of Loss Adjusters survey, 40 percent of BI coverage declarations were deemed too low by about 45 percent. To ensure your limit will be adequate, you’ll need to accurately project revenue for the upcoming 12-month period. Next, you’ll need to assess how long it would take to replace all damaged property and resume operations in the event of a worst-case loss. From there, you can work with your insurance agent to select a business income limit of insurance.

At the end of the day, you can’t afford to gamble your business’ future (or your employees’ livelihood) on the promise of smooth sailing. Arm yourself with a business continuity plan that includes paid protection for unexpected downtime. As always, feel free to reach out with your specific questions.