Business Interruption Insurance made simple

Protect your company against potential financial setbacks

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Business Interruption Insurance

A business interruption can occur at any time and for any number of reasons. From natural disasters to pandemics, countless threats can disrupt your business operations and cause you to lose income.

That’s why it’s so important to have a solid plan to protect your company from the financial losses that come with a business interruption.

One of the most important tools in this plan is business interruption insurance.

What is Business Interruption Insurance?

Business interruption insurance, sometimes known as “company income insurance,” is a form of insurance that covers income loss caused by a business interruption.

The coverage can be triggered by a number of events, including natural disasters, fire, other property damage, theft, and more.

It may help your firm remain afloat as you attempt to recover from a business interruption.

Types of Business Interruptions Insurance

There are several types of business interruption insurance, including:

  1. Actual Loss Sustained (ALS) Coverage: compensates the business for actual financial losses incurred during the interruption period.
  2. Gross Earnings Coverage: compensates the business for both actual losses and lost profits during the interruption period.
  3. Extra Expense Coverage: This covers additional expenses incurred to minimize the disruption, such as temporary relocation or expedited shipping costs.
  4. Civil Authority Coverage: This covers losses caused by a government-ordered shutdown of the business due to a local disaster.
  5. Contingent Business Interruption Coverage: covers losses resulting from a business interruption at a supplier’s or customer’s location.
  6. Supply Chain Interruption Insurance: Covers losses caused by supply chain disruptions such as supplier bankruptcy or natural disasters.
  7. Coverage for Cyber Business Interruption: This covers losses caused by cyber-attacks or data breaches that cause business interruption.
business interruption insurance

What Business Interruption Insurance Covers

Business interruption insurance compensates a company for income lost as a consequence of a covered incident.
The following are eight common types of business interruption insurance covers:

1. Loss of Income

Business interruption insurance compensates for lost revenue that would have been generated if the disruption had not happened.

This includes lost earnings, revenue, and other income that would have been received if the firm had continued to operate regularly.

2. Operating Expenses

In addition to lost income, business interruption insurance can also provide coverage for certain operating expenses that continue even when your business is not operating normally.
This may include rent, utilities, insurance, and other expenses that are necessary to keep your business running.

3. Extra Expenses

Business interruption insurance can also cover any extra expenses necessary to get your business up and running again after a business interruption.

This may include the cost of relocating your business to a temporary location, hiring temporary workers, and other expenses related to restoring your business operations.

4. Business Relocation Expenses

Business interruption insurance can cover the costs associated with relocating your business to a temporary location, if necessary, due to a business interruption.

5. Property Damage

This covers the loss of income if the policyholder’s property is damaged and they are unable to operate their business.

6. Key Person Interruption

This covers the loss of income if a key person in the business, such as the owner or top executive, is unable to perform their duties due to an illness or injury.

7. Utility Services Interruption

This covers the loss of income if the business is unable to operate due to the interruption of utility services such as electricity, water, or gas.

8. Supplier Interruption

This covers the loss of income if a business is unable to operate due to the interruption of its supplies or services from its suppliers.

Coverage levels and specific terms will vary depending on your policy type, the specific business interruption event, and other factors.

It’s always a good idea to contact your insurance agent to ensure you have the coverage needed to safeguard your company from the financial losses that might arise.

business interruption insurance

What Business Interruption Insurance Does Not Cover

Business interruption insurance typically does not cover the following:

  • Losses caused by normal business fluctuations
  • Losses caused by acts of war or terrorism (which may be covered under a separate
  • policy)
  • Losses that occur gradually over time, such as changes in market conditions,
  • Losses caused by failure to maintain proper insurance coverage
  • Losses due to a breach of contract or failure to pay debts
  • Losses from the failure of utility services, unless specifically caused by a covered peril,
  • Losses arising from illegal acts by the policyholder or employees
  • Losses caused by earthquakes, unless specifically covered by an endorsement

Why is Business Interruption Insurance Important?

Business interruption insurance is necessary for a variety of reasons. The most apparent benefit
is that it offers a safety net for your organization when it is most needed.

When a business interruption occurs, it can be extremely difficult to make ends meet and keep your company running.

With business interruption insurance, you can rest assured that you’ll have the financial support you need to get through the tough times.

Another reason why business interruption insurance is so important is that it helps protect your company’s future.

A business interruption can cause long-term damage to your company’s reputation, financial stability, and ability to compete in the market.

With the right insurance coverage in place, you can minimize the long-term effects of a business interruption and ensure that your company is well-positioned to recover and thrive in the future.

business interruption insurance

How Business Interruption Insurance Works

Business interruption insurance typically covers the lost income you would have earned had the business interruption not occurred.

For example, if your business was closed for a month due to a fire, your business interruption insurance policy would provide coverage for the income that you would have earned during that time.
Please keep in mind that business interruption insurance coverage is often restricted to a certain period of time known as the indemnity period.

This is the amount of time your business can continue receiving income from your insurance policy after a business interruption.

It’s important to choose an indemnity period that is long enough to give you enough time to recover from the interruption, but not so long that you’re paying for unnecessary coverage.

Business interruption insurance final thoughts

Business interruption insurance is a must-have for every company that wishes to safeguard its financial stability in the event of a business interruption.

Whether you’re a small startup or a large corporation, this type of insurance can help you stay afloat during a difficult time and ensure that your company is well-positioned to recover and thrive in the future. 

If you don’t already have business interruption insurance, now is the time to start thinking about getting it.

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September 21, 2023
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FAQs about business interruption insurance

How long does business interruption coverage last?

The length of time that business interruption coverage lasts depends on the specific policy. Most policies have a limit, often referred to as the "indemnity period," which is the maximum amount of time that benefits will be paid. The indemnity period is typically 12 to 36 months, but it can be longer or shorter depending on the policy and individual circumstances. It is important to note that the indemnity period starts from the date of the loss, not the date of the policy. Also, the actual amount of time that benefits are paid will depend on when the business is able to resume operations and the policyholder's financial situation.

Who needs business interruption insurance?

Business interruption insurance is meant to safeguard organizations of all sizes against the financial losses that might arise from a sudden stoppage in their activities. Natural catastrophes, fires, power outages, cyber-attacks, and other occurrences fall within this category. The policy is intended for any business that would suffer a financial loss if it were unable to operate for a period of time.

How much does business interruption insurance cost?

The cost of business interruption insurance can vary widely depending on several factors, including

  • the size of the business,
  • the industry it operates in,
  • the location of the business,
  • the type of coverage being purchased,
  • the amount of coverage needed.
Some insurance companies may also take into account the business's loss history and financial stability. In general, small businesses can expect to pay anywhere from a few hundred to a few thousand dollars per year for business interruption insurance. For larger businesses, the cost can be much higher and could reach tens of thousands of dollars annually. The cost of business interruption insurance should not be the only consideration when purchasing a policy. Business owners should carefully evaluate their specific needs and compare quotes from multiple insurance companies to find the best coverage at the best price.

Who needs business interruption insurance?

Company interruption insurance is intended for business owners who need financial protection against unforeseen catastrophes such as natural disasters, fire, or theft that may impair their operations. The purpose of this insurance is to provide financial assistance to help cover the costs associated with the interruption and help the business recover and resume normal operations. Businesses of all sizes and industries can benefit from this type of insurance.

Business Interruption Insurance made simple

Protect your company against potential financial setbacks

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