A business interruption policy is a critical part of a business’s emergency plan. Many businesses have insurance policies to protect their property, and maybe for their liability, but many businesses don’t consider insurance that would protect their revenue.
A business interruption policy is designed to protect against lost revenue caused by a covered physical insurance loss. A typical business interruption policy covers income loss and extra expenses.
Businesses typically have the following insurance coverages:
- Commercial Property – to protect the company’s physical property
- Commercial General Liability – to protect the company from lawsuits
- Commercial Auto – to protect company vehicles from physical damage and lawsuits
But a business interruption policy is often overlooked and come claim time many businesses don’t have this important coverage.
What are the basics of Business interruption policies?
As stated, business interruption is a type of insurance designed to protect businesses from income loss and extra expenses if they are inoperable due to a covered physical loss.
In short, business interruption policies protect your revenue. They work to get you back to the financial point you were in before the loss.
Business interruption policies are typically part of a commercial property policy or some type of commercial package policy such as a BOP. They are not stand alone polices.
Why do businesses need Business Interruption policies?
A business interruption policy can be the life raft that keeps a business afloat after a large insurance loss.
Think about it for a moment: If your business suffered a major loss such as from a hurricane or fire and became inoperable for a few weeks to a few months, could your business survive?
With no income, but often with the same operating expenses, most businesses cannot. In fact, 40 percent of small businesses don’t reopen after a catastrophe.
What does a business interruption policy cover?
Extra Expenses: Business interruption policies will cover extra expenses the business must endure to continue operations while repairs are being made. This could include the cost of a temporary location or the rental of equipment necessary to get operations back on track.
Lost income: This is the most recognizable feature of a business interruption policy. Lost income coverage will provide income lost because of a covered physical loss. So, if you can’t operate for a month because of a fire, the lost income coverage on a business interruption policy will make up those lost profits.
Lost income claims are not easy to settle. The insurance company will ask for a slew of documentation including income and expense records, tax information and other reports.
If you are having difficulty with your business interruption claim, you can always contact Bulldog Adjusters by clicking on the button below.
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Ongoing Operating Expenses: Just because your business isn’t operating, doesn’t mean your operating expenses go away. Often small businesses are still obligated to pay rent even though they can’t operate.
You may also have ongoing payroll expenses if you are keeping your employees on the payroll while you recover.
A business interruption policy will cover these types of ongoing expenses. But again, be prepared to show lots of documentation to help get your claim settled.
Civil Authority Action: Often after a catastrophe government authority may block access to your business. For example, after a major storm, you may not be permitted to get back to your business due to road closures and down power lines. The police and fire department have set up road blocks until they make sure the area is safe.
This type of civil authority action may be covered under a business interruption policy. However, this should not be confused with an evacuation order before a storm.
Related events such as power outages may or may not be covered depending on the specifics of your business interruption policy. It is best to check with your policy and insurance professional for specific information on your coverage.
What kind of deductibles does a business interruption policy have?
A business interruption policy itself doesn’t have a deductible. Since this coverage is typically added to a commercial package policy or a business owners policy (BOP) the deductible form the overarching policy would apply in a loss.
It is important to remember that a business interruption policy can have a waiting period. This is a predetermined number of hours after a triggering loss that must pass before a business interruption policy will provide coverage.
The waiting period can be 24-72 hours. Some policies waive the waiting period completely.
What kind of limits do business interruption policies have?
A business interruption policy – like all insurance policies – has limits. The limits for business interruption are typically described in a number of days. This is variable per the policy. Some will pay for a limited number of days – 30, 60 or 120. Some will pay out for up to 12 months.
These limits are subject to your specific policy provisions.
Also, the coverage on a business interruption policy is driven by what your company typically earns and the operating expenses. Again, if you have a business interruption loss, be prepared to show a lot of documentation to your insurance company.
What do business interruption policies not cover?
A business interruption policy is designed to restore your business finances back to where they were before a triggering loss.
Like all insurance it is intended to “indemnify,” or put you in the same position you were before the covered loss.
But again, the coverage only comes into play if there is a triggering physical loss. Here are some things that can interrupt a business, but are not covered by a business interruption policy:
- Business slow downs
- Profit loss due to introducing new technology or policies
- Seasonal business closures
How do I get a business interruption policy?
Business interruption coverage isn’t perfect. The claims are difficult to prove and adjust, and there are waiting periods for coverage.
Business owners must jump through many hoops to prove their lost income and extra expenses.
Still, a business interruption policy can save your business, and should be a part of your disaster plan.
If you are struggling with a business Interruption claim, call your experienced, local and licensed team at Bulldog Adjusters.
