What is Business Interruption Insurance?

With so much personal and financial investment, it can be comforting to know that your business and financial stability are protected should something unfortunate happen. But with so many different business insurance products available, many business owners take out a single form of insurance and assume they’re covered for every eventuality – but nothing could be further from the truth.

While many forms of business insurance cover you against claims made by the public, they may not cover you for other instances when your business suffers a sudden and damaging loss of income. This is where Business Interruption Insurance can be so useful. But what exactly is Business Interruption Insurance, do you really need it as a business owner, and how can it help you when things get difficult? Let’s discuss.

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A quick breakdown of Business Interruption Insurance

Business Interruption Insurance is designed to protect you if your business income slows drastically or stops completely in the event of an unforeseen disaster, like fires and earthquakes.

While property and contents insurance may be able to fulfil the cost of building repairs and items that are damaged, these insurance policies will not cover any losses you incur due to a lack of income during the time you’re unable to trade. Business Interruption Insurance provides the income you would have made, allowing you to stay afloat during what would be an incredibly difficult time.

Things you should know about Business Interruption Insurance

There are some tax benefits you can take advantage of through Business Interruption Insurance, because you can claim your interruption of earnings as a legitimate tax expense, further alleviating the financial stresses of a disastrous event.

However, it is important to note not all claims are completely black and white – you’ll need to be able to prove without question your loss of earnings was a direct result of a specific disastrous event and the type of disaster that’s covered under your policy.

Your policy will usually cover you from the date of the incident to the date full repairs have been made to your property, when your lost items have been replaced, or you’re back trading at the same levels you were before the disaster. In terms of how much you’ll receive, your insurance provider will likely examine your level of income from the same time in the previous year, to give a more accurate picture of how much you’ve lost.

What am I covered for with Business Interruption Insurance?

Because the variables involved in a claim on Business Interruption Insurance can be so vast, it is important to have a good understanding of what precisely you’ll be covered for if you’re considering making a claim. Here are the different elements involved in Business Interruption Insurance – knowing these may help you decide whether Business Interruption Insurance is the right product for you:

Types of coverage

Business Income Coverage

This coverage helps replace takings you’ve lost due to the disaster, as well as covering continuous expenses if your business needs to temporarily close. It will also cover things like lost profits, rent payments and other operational costs.

Extra Expense Coverage

This type of coverage is designed to offer additional payments to avoid a total closure of your company. This could include things like rental payments if you’ve been forced to leave your permanent office and move into a temporary space.

Contingent Business Interruption Coverage

This coverage isn’t so much involved in your own business, but businesses you rely on. Contingent business interruption coverage will offer support in the event an associated business or supplier is unable to fulfil their services, resulting in your business suffering.

Civil Authority Coverage

In the event a local authority forces your business to close or evacuate the premises, civil authority coverage will help replace any losses you incur as a result.

For clarity, here is a list of business elements business protection insurance will help cover you against:

Profits
Operating expenses
Location moves
Retraining costs
Reasonable expenses
Forced civil authority closure
Wages
Taxes
Business loan payments

What am I not covered for?

Business Interruption Insurance will not cover you for damages to your property or contents. This is where many business owners get confused, but you need to understand these two aspects of your business are separate and are covered by separate business insurance policies.

For example, in the event of an earthquake in which part of your office collapses, business interruption insurance will step in to offer the income you’ve lost as a result. It will not cover the costs of repairing the building or replacing lost or damaged items – these are covered under other business buildings and contents cover policies.

Also, you won’t be able to claim for any losses you incur that you’re unable to prove. When you apply for the policy and make your claim, you need to make sure you offer a full and thorough picture of your business’s income, including any associated accounts you may forget about from time to time, to make sure your insurance provider is convinced the losses you’re claiming for are genuine and that you’re not attempting to claim for more than you’re actually owed.

Do I really need Business Interruption Insurance?

If you are a business owner and would struggle to keep your business (or yourself) financially stable in the event of a disaster, you would absolutely benefit from Business Interruption Insurance. This is especially true if your business would suffer massive losses if you were forced to cease work suddenly and wouldn’t be able to recover without assistance.

Are events like these guaranteed to happen? No. But having this type of cover in place can be a godsend should the unexpected occur.

Choose a reliable, reputable insurance advisor to help

If you’re unsure of the precise type of insurance product your business needs, or if you’d like some more information about the different types of insurance before making a decision, you should speak to a reliable and reputable insurance advisor with the relevant industry experience to help point you in the right direction. Putting in the time now to work with experts will give you the answers you need faster and prevent you from unknowingly signing up for a product that doesn’t meet your needs, which could prove to be a nightmare in the future.

David Prior

David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.