Business interruption insurance — do you need it?
Do you need business interruption insurance? Yes. It may sound boring, but it’s critical coverage. Let me take a few minutes to answer four simple questions. I always say that “after a claim” is never the best time to ask questions about your coverage. So here we go:
What is business interruption insurance?
Business interruption insurance is also known as “business income insurance.” Some people like the phrase, “getting back to business insurance.” I like that phrase too.
Basically, it’s insurance to cover the lost revenue your business suffers because it had to close the doors due to a covered loss. You could think of it as a kind of “business disability” policy.
Just like an injured person needs money to make up for a missing paycheck- your business can get injured too. Even though your regular business insurance policy will pay for “stuff” to be repaired… your business will still miss its “paycheck” while the repairs are being made.
Business interruption insurance keeps the money flowing when the doors are closed.
How does business interruption insurance work?
Business interruption insurance is “triggered” when a covered loss in your regular business insurance policy causes your business to shut down. Most policies have a several day waiting period (usually between two and three days) before coverage kicks in. Business interruption (or business income) insurance is never a “stand-alone” policy. Instead, it’s an add-on coverage to an existing business insurance policy, like a Business Owners Policy (BOP).
Once the covered loss (like fire, theft or natural disaster) shuts your doors, and the waiting period is over, the policy will start paying. It’s important to know that the amount it will pay is based upon too many factors to go into in this post. Remember, I’m writing a blog post, and not a promise of policy specifics. Make sure you call your agent (or me) to discuss specifics.
Business interruption insurance starts soon after you hang the CLOSED sign on your door.
When there’s a claim, a “forensic accountant” will go through your books to see what your sales have averaged over the last couple of years, and also what your payroll has averaged. That can be a creepy thought if you aren’t prepared for it. So have a plan of action in place to get your records together quickly in the event of a loss. Fishing around for records after a disaster will be no fun. Talk to your accountant now about being prepared for a business interruption claim.
Review your policy every year.
If you have never carefully reviewed “what if” scenarios with your agent, especially in the case if lost income… now is the time to do that. Right now. Like, pick up the phone and call an agent. There are many fine points and details to this type of coverage. If you’re like most business owners, it’s likely you haven’t understood how these details will affect you at claim time.
How important is business interruption insurance?
I’ll answer that with a question. How long can you tread water while the “Closed For Business” sign hangs on your door? A week? A month?
Unless Warren Buffet is your uncle, you probably don’t have an unlimited supply of money to keep your business afloat. And even if you can personally stay afloat, what about your employees? Sure, there’s unemployment. But if stay closed long enough, many of them are going to get other jobs because they can’t live on unemployment. Can you afford to lose any of your key employees?
Approximately 25% of businesses that close due to natural disaster never reopen, according to the Institute for Business & Home Safety (page 4 of this brochure). Don’t let this be you.
Business interruption is one of the most critical pieces of your insurance coverage.
Don’t I automatically have this coverage?
Not necessarily. Most BOP policies include a basic amount of business interruption coverage automatically. But not all do. And surveys show that many employers don’t have this coverage.
Sometimes it’s cost.
Sometimes it’s simply an oversight.
Sometimes owners think it’s not important.
Don’t assume that you have this vital coverage. Don’t assume the coverage is enough.
I’m a business insurance specialist in Arizona.
Dig out your business insurance policy declaration page, and give me a call. I’d be happy to do a quick phone review to help you figure out if you have enough business insurance protection.
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Originally published at www.joesinsurance.com.