What is Business Interruption Insurance?
Business Interruption Insurance, also known as Business Income Coverage, provides coverage against loss of operating income due to fire, explosions, and other named perils as noted in each particular commercial coverage description. Coverage can be broadened through the addition of these options:
- Direct Loss (Loss that is a direct result of a named peril).
- Indirect Loss (Loss that is not a direct result of a peril). For example: Damage to property of a business firm would be a direct loss, but the loss of business earnings because of a fire on its premises would be an indirect loss.
- Consequential Loss (Indirect loss such as the reduction and value of property that is the result of a direct damage loss).
- Extra Expense (Coverage providing reimbursement of expenses for temporary repairs and costs incurred to replace covered property and equipment).
- Mandatory Evacuation (Hurricanes could cause a civil order to evacuate causing an interruption in your business for longer than you would want to financially anticipate). Ask agent about availability.
- Other available endorsements can be discussed with your agent.
When a business is unable to open its doors because of one of the above mentioned perils, the Business Interruption Policy will cover some of the following expenses:
- Fixed expenses (rents, utilities and advertising, etc.).
- Extra expenses incurred while relocating to another location.
- Purchasing of any additional equipment or furnishings necessary to reopen.
- Lost income (the profits you would have earned based on your financial records, had the disaster not occurred).
Make sure your policy limits are sufficient to cover your expenses for more than just a few days. For example, after a major disaster such as a hurricane, tornado or fire loss, it takes more time than most anticipate to get business back on track. Normally, there is a 48-hour waiting period before Business Interruption goes into effect.
Rates vary based on type of business and risk. (Example: A restaurant’s risk would probably be higher than that of a CPA’s office, because of the greater threat of fire. Also, it would be easier for the CPA office to operate from another location as compared to a restaurant).
Policies containing this coverage vary from one company to another and contain certain exclusions and limitations. You must always consult your insurance agent and refer to your policy for actual coverage provided and the extent thereof.