Business interruption policy, sometimes referred to as business income insurance and contingent business interruption coverage, is one of the most important insurance policies for most business owners. Essentially, this insurance can help your business recover from a loss, protecting your cash flow. In other words, in case your business is temporarily closed, due to a catastrophe covered by this policy, for instance, property damage, direct physical loss, destruction to insured property – this insurance can help replace your income.
What Is a Business Interruption Insurance Policy?
If you acquire a business interruption insurance policy, the gross profit of your business will be protected, which means that you will be able to meet the ongoing expenses, as well as speed up the process of recuperation. As a matter of fact, this insurance policy can help keep the financial status of your business in the same or similar position as it was before the unexpected loss, caused by events covered by the policy.
A business interruption policy can allow you to re-purchase the equipment or stock you have lost as a result of the event. For instance, if the building from which you conduct your business, is destroyed along with your contents, equipment and stock, you may not have a way to continue conducting your business.
If don’t have the necessary equipment for your business operations or you don’t have premises from where you can trade, your business will be left without a way to pay wages, loans, creditors, rent, fixed personal expenses, and so on. This of course doesn’t mean that if the business suffers a huge loss, it will be business as usual right away. However, with this type of policy, it would take significantly less time to go back to where you were before the event. You should be aware that the period of restoration for some really bad losses may last at least 6 to 12 months.
However, not all business interruptions will be as catastrophic, and luckily, business interruption insurance policies will also respond to less serious events, that result in a loss. For instance, in cases when a business may suffer a partial loss they can help you avoid the disruption in your daily operations and trade. In such events, the restoration should last significantly less.
What Is Covered by a Business Interruption Insurance?
In the event that business operations are halted as a result of direct physical loss or damage, for instance, due to a natural disaster, such as earthquakes, cyclones, storms, accidental damage, or a fire, business interruption insurance policies will replace the lost income. Furthermore, it will also cover the operating expenses, taxes, loan payments, payroll, as well as a transfer to a temporary location, etc. If the income of your business drops as a result of an event insured by the policy, you can lodge a claim.
However, not all interruptions to the income of your business are covered. For instance, if your business uses equipment such as machinery, and it breaks by an event that isn’t covered by the insurance, you will not be able to lodge a claim. Nevertheless, there are options for such events. For instance, you can look at packaging business interruptions to include such events.
How to Choose the Right Policy?
The easiest and most secure way to determine the correct sum insured is to consult experienced professional insurance brokers. An insurance broker can help you find all the right insurance policies to cover different potential losses and liabilities for your business. When it comes to this particular policy, depending on the type of business it may be quite complex to calculate the right sum. A professional can help you with this calculation as well as help you understand everything about the policy.
As a business owner, uninterrupted cash flow is your biggest concern, which is why you need this insurance in the first place. So, obviously, it is vital to be able to cover all your expenses, during the entire period while the business operations are stopped. In other words, it is extremely important things when it comes to acquiring the right business interruption insurance policy is to determine how long you may need the payments to last in a worst-case scenario.
This of course can be very different from business to business, depending on both the type of the business, the size, the number of employees, and so on. In essence, you would want to be covered during the time you need to restock or find the necessary machinery or parts for the damaged equipment. Don’t forget to take into account how difficult it is to find the type of equipment used for your business, the parts needed for repair, as well as the approximate time needed to repair different types of damages.
Furthermore, think about the premises: is it important that you stay there, and if so, how much time would it take to rebuild in the worst-case scenario? Is it possible to find new premises, and how long would you need to find it, as well as prepare it for normal operations?
