In the event of a covered property loss, your property insurance policy (or the property portion of your Business Owners Policy or package policy) would pay to replace your building and contents, if you are insured for those. But what about your lost income while your structure or items are being repaired or replaced?
Business Interruption coverage, also called Business Income coverage, is designed to reimburse business for the income they would have received had a loss never occurred. This allows businesses to survive financially during the period of reconstruction after a loss.
What Business Interruption Covers
Businesses that purchase Business Interruption coverage should be able to continue to pay bills and vendors, as well as key employees they wish to retain when the business reopens. Business Interruption coverage may reimburse the following:
- Lost Profits. These are profits that would have been earned during the policy period. The amount is based on prior months financial statements, and may be subject to a specified limit or actual loss sustained.
- Operating Expenses and Other Fixed Costs. Vendors, utilities and other fixed costs may need to be paid during the reconstruction period. These are usually included in the Business Interruption limit, but some policies may include a sublimit for these costs.
- Temporary Location. If a temporary location would help get your business back up and running more quickly the policy may cover this expense.
- Training Costs. If replacement electronics or machinery require special training, the policy may pick up these costs.
- Extra Expenses. A major loss may require expenses that are not part of normal operations. This limit may be included with the Business Interruption limit, included as a separate line item, or a sublimit within the policy.
Do You Need It?
If you operate a business that is location specific, such as a restaurant or retail location, business interruption coverage should be an integral part of your insurance portfolio. The amount of time required to repair or replace your storefront will be significantly higher than an office exposure.
If you operate a small business such as an accounting firm or consulting office, relocation is typically easier and less expensive, so less coverage may be required. However, there are still expenses associated with reconstruction, and those should be insured under Business Interruption coverage.
The bottom line is that every business can benefit from Business Interruption coverage. Contact Hayes Brokers to schedule a risk management analysis to determine if this coverage is included in your policy, and if the limits are sufficient to sustain your business in the event of a loss.