Business interruption insurance can compensate you for lost revenue if your business cannot operate because of disaster or other event that forces you to temporarily close your business.
For example, you may have a manufacturing business that is forced to shut down because the company that makes the raw materials you use has shut down and cannot deliver the supplies you need to operate. Or, you might have a retail store and it is destroyed by a fire, you probably won’t be able to operate until you can find a new location or move to a temporary location while you rebuild or repair.
While property insurance will cover the damage to your building caused by the fire, and pay for replacement or repair, you could still incur significant losses. That’s because property insurance will not cover you for your lost revenue and operating expenses that you’ll still have to pay. If you have employees, you may be forced to lay them off until while your business is shut down.
That’s why you may need business interruption insurance. Business interruption insurance typically covers you for three things that are not normally covered by property insurance. They are:
- The profits you would have earned if your business had not been forced to close.
- Normal operating expenses that you still must pay, even though your business is temporarily closed. This can include salary and wages for your employees, so you can keep them employed rather than lay them off.
- The costs of moving your business to a temporary location while your permanent location is rebuilt or repaired. This can include rent for temporary space and moving expenses.
How Are Payout Amounts Calculated?
The payout amounts you will receive if you have business interruption insurance will be based on existing records about your business’ income and expenses. That’s why you should always store your records off site. Or, if you keep digital records, be sure to store them on cloud-based storage that you can access from anywhere.
What is Contingent Business Interruption Insurance?
If your business depends on a single supplier or vendor to operate, you could be forced to shut down if that vendor has a disaster that causes it to shut down and can’t not provide the products or services your business needs.
If your business interruption insurance has a rider for contingent business insurance, you’ll be covered if a primary supplier or partner is forced to shut down. Your contingent business insurance will pay for the revenue you lose while you work to find a new supplier. While contingent business insurance can ease some of your financial worries, there may be a time limit to your coverage, so you should make finding a replacement supplier your top priority.
Not every business needs contingent interruption insurance, but you should look into purchasing it if your business meets any of the following criteria:
- You depend on a single or few manufacturers for most of your merchandise.
- You depend on one or a few suppliers for the materials you need to operate your business.
- The majority of your sales are to one or a few businesses that you supply.
- Your business takes advantage of a neighboring business, such as a large department store, to attract customers to your store.
Your insurance professional can help you decide if you need a contingent business insurance rider.
What Is Not Covered by Business Interruption Insurance?
A typical business interruption insurance policy covers:
- Lost revenue, or the income your business would have earned had it not been forced to close.
- Rent or lease payments if you have to continuing paying for premises that have been made unusable by a disaster or other event.
- Relocation expenses if you are forced to move your business to a new location so you can reopen.
- Taxes that you will still have to pay, even though you were forced to close.
- Loan payments that you must continue to make while your business is shut down.
- Losses you incur because damage or other activity over which you have no control limits access to your business.
Who can Get Business Interruption Insurance?
Most insurers will provide business interruption insurance to businesses that have a dedicated physical location, such as a storefront, warehouse or office. Home-based businesses are more difficult to insure, though your insurance professional can help you get the coverage you need if you do run a business from your home.
Other factors that can affect your eligibility include:
• Your business’ classification or industry.
• Your location.
• Your history of filing interruption claims.
Not all businesses can get business interruption insurance. Different insurance companies have different criteria so be sure to consult your insurance professional and get their help determining if your business is eligible.
Give us a call at 215-997-5800 to talk with Scott Hartzell about business interruption insurance. Scott has been helping business owners get the proper insurance for their businesses for more than 32 years.