Is Your Business Fully Insured for a Disaster?
Most small businesses that have a physical location carry property insurance to repair damage and replace personal property that is destroyed in the event of a fire, windstorm, or another covered disaster. In fact, it would almost be unthinkable for a business owner to go without this type of coverage. You need to be able to fix up your location and replace valuable merchandise in order to get back in business as quickly as possible when disaster strikes.
While business owners usually understand the need for property insurance, many of them do not consider how they would get by financially if they had to shut their business down for a while because of a disaster. What would you do without the revenue that comes in from your business every week? This is where business interruption insurance can be a lifesaver.
What is Business Interruption Insurance?
Also sometimes referred to as “business income and extra expense insurance”, business interruption insurance is coverage for lost income should your business have to close temporarily because of a disaster. It is similar to disability insurance on the personal side in that it is basically insurance for when your business is temporarily “disabled” because of a covered event.
Business interruption insurance typically provides three basic types of coverages:
- Insurance for the profits you would have earned had your business been able to stay open
- Insurance for regular operating expenses while the business is closed, such as paying your employees
- Insurance for the cost of temporarily relocating your business, such as moving expenses and rent
The payouts the insurance company provides when your business interruption insurance kicks in are based on your business income and expense records. Always be sure to keep accurate records and have them stored safely off site or in the cloud, so they can be easily retrieved if anything ever happens at your business location. Many businesses also have a copy of these records on file with their CPA.
There are some important things to note about business interruption insurance that you should be aware of:
- There is usually a waiting period of around 72 hours before coverage kicks in
- There are some expenses business income insurance usually won’t provide coverage for, such as utilities, undocumented revenue, and losses from partial closures
- Business interruption insurance will only cover for events that are covered by your property insurance policy, which will usually not include floods or earthquakes unless you have special endorsements for these events
- Coverage only extends up to the limits of the policy, so be sure you have enough coverage in case you are out of business for an extended period of time.
Speak with an Independent Agent about Business Interruption Insurance Options
Business interruption insurance is not a standalone policy. It is usually added to a property insurance policy or packaged into a business owners policy (BOP). To find the right coverage for your business, it is best to speak with an independent insurance broker. Independent agents work with several of the top insurers in your state, and because they are not captive to any one particular carrier, they are able to shop freely to find you the coverage that best suits your needs and budget.