Are you planning to purchase business interruption insurance?
If yes, you’ve made a sound business decision. Business interruption insurance is a must-have for any business. Broadly speaking, you will get compensation when your business loses its income because of a disruption to its normal operations.
However, likes most insurance policies, the specifics of business interruption insurance aren’t immediately clear. It’s possible to purchase this insurance policy and fail to get compensation when your business’s operations are interrupted. The devil is always in the details.
What Interruption Events Are Covered?
From a layman’s understanding of business interruption insurance, you’d think business interruption insurances covers every kind of event that causes business disruption. This isn’t the case.
There are several events that can potentially disrupt your business. For example, if a fire breaks out in your building and razes it down, your business will be forced to shut down until repairs are made or until it relocates.
Similarly, if you run a sole proprietorship and you have no employees who can run the enterprise, you’ll certainly shut it down if you were to become hospitalized.
Both events result in the interruption of your business, but not both are covered by business interruption insurance. Although policy terms and conditions vary from insurer to insurer, this policy typically covers events that result in damage to business property.
In the case of a fire, for example, your assets, which you use in the daily running of the business, will be damaged or completely destroyed.
If there’s an event that has shed more light on business interruption insurance, it’s the COVID-19 pandemic. With businesses forced to shut down for months, effectively stripping them of their income, many business owners are wondering whether business interruption insurance provides compensation.
Well, in truth, it depends on the terms of your insurance policy. Some providers cover such unforeseen events, others don’t. If you believe you’re entitled to compensation because of COVID-19 disruptions and your insurer denies your claim, you might want to hire a law firm to help you out.
The Costs That the Policy Covers
Let’s say a covered event has occurred. You’re preparing to file a compensation claim. What costs will the policy pay?
The first cost business interruption insurance takes care of is profits. When your business is interrupted, you lose profits. Some insurers will reimburse you based on your average profits or the prior month’s profits. So, if you made a $10K profit last month or that’s it’s average, and it shuts down for 2 months, you’ll get about $20K.
Fixed costs. These include rent, loan repayments, employee wages, and other expenses that you incur in the course of running your business.
There are other costs the policy may cover depending on the contractual agreement you have with the insurer.
What Does Business Interruption Insurance Cover? Now You Know!
Are you still asking what does business interruption insurance cover? To recap, this policy covers events that cause disruption to your business and pays for what your business will lose during the disruption. Policy terms and conditions vary from insurer to insurer, though.
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