Business Interruption Insurance: Is It Important?

Business Interruption Insurance: Why Is It Important?Small business owners will not hesitate to buy coverage insurance to protect their entity due to physical damage of the property or liability protection. What if something happened to their business that made it temporarily unusable? Too many owners skip over this fact. Thankfully, there is a little something called business interruption insurance that will protect their business in a big way.

What is Business Interruption Insurance?

Business interruption insurance is a type of insurance that covers the loss of income that a business suffers after a disaster. Here is an example scenario: a business next to your building catches fire that spreads to yours and ultimately destroys much of the properties. It’s clear you won’t be able to open up shop for a while. When you think it couldn’t get any worse, most of your products or merchandise get destroyed in the process. This interferes with shipments and therefore your ongoing profits.

What other factors, besides a fire, could cause your business to close?

  • Hail: Damage to windows, roof, and lots of clean up.
  • Flooding: Water damage from floods or a burst pipe
  • Windstorm or Tornado: Replacing roofing or siding.
  • Vandalism: Depending on severity, clean up and repairs could take days or weeks.
  • Equipment Damage: Could take days or weeks to get the right part.

What Does Business Interruption Insurance Cover?

This coverage is not sold separately. It is added to a property insurance policy or included in a package policy, such as a Business Owner’s Policy (BOP). You will be reimbursed for the revenue that you would earn during the closure. A TJ Woods agent would use your financial records to make sure they’re accurate and up to date to receive full compensation. This extra policy is applicable to all types of businesses; it is designed to put a business in the same financial position it would have been in if no loss had occurred. This policy covers:

  • Profits: Compensates you for lost income if the business must be vacated due to the disaster. It covers the revenues you would have earned
  • Temporary Location: Some policies cover the expenses for moving and operating from a temporary location.
  • Extra Expenses: This policy covers operating expenses, like rent or electricity, that continues even though the business activities are halted.

How Much Coverage Do I Need?

It all depends on the size of your business, how much revenue your company generates, and risk. Also, costs vary depending on these factors. You should ask yourself questions like how much it would cost to pay the bills if you were shut down for (x) amount of days/weeks/months?

Risks depend on your location and what type of business you run. You could be in a location that is on the coast that can suffer from damage to windstorms or flooding. There may also be different rates assigned to you based on the type of business you own. If you own a restaurant you would pay more for insurance than a clothing store because it has a higher risk of fires.

Looking to purchase a Business Owner’s Policy with business interruption coverage? Contact a TJ Woods agent to explore what options are best for you and your business.