Business interruption insurance can play a critical role in just about any business, yet many business owners fail to purchase it or wind up underestimating the amount they need. Why? Because compared to other types of business-related insurance like equipment damage or fire, the role of business interruption insurance may not be entirely understood.
So just what is business interruption insurance? And why do you need it? It’s actually pretty simple: Business interruption insurance is coverage that protects you if your business activities are curtailed (or interrupted) by some unforeseen circumstance, like a fire, wind damage or vandalism. Any of those events and plenty more could keep you from operating your business, and that could mean a substantial loss of profit and opportunity for you and your company.
A business interruption policy covers the revenue you would have earned during the interruption period, and it also covers operating expenses that continue even though your business has come to a temporary standstill. Most policies offer coverage for interruptions caused by events covered under your property insurance policy, with extras like interruptions due to power outages or power surges following an outage available as riders for an extra cost. Because business interruption insurance is in addition to your property insurance, it can be a surprisingly affordable way to gain some added peace of mind.
To determine your needs, consider the potential losses and costs your business would accrue during an extended period of interruption. Many disasters take more than a few days to correct, so be generous in your estimates. Also be sure to determine when business interruption coverage kicks in; many policies aren’t activated until 24 to 48 hours after an interruption begins.
Like other types of insurance, your policy premiums will be based on your business’ risks for fires or other disaster. Your insurance agent can help you perform an assessment to make sure you have adequate coverage based on your historical financial data and other factors.
