Have you considered what would happen if something caused you to close up shop or suspend production for a while? Are you sure your business could survive the setback? Learn why business interruption insurance is so important to keep your company going.
What is business interruption insurance?
Business interruption insurance is designed to replace a source of business revenue that’s suddenly reduced or eliminated by certain disruptive events. This coverage can also extend to additional expenses that help you limit your loss and get back to business quickly after the incident.
Financial help for tough times
When work grinds to a halt, you not only have to put time and money toward getting your business back on track, but your potential income stream could dry up, too. It’s a double hit to your bottom line that many businesses simply can’t afford. That’s why we have specialized coverage to help get you through a break in business.
Business interruption insurance is a type of property coverage, but instead of directly covering the costs of repair or replacement, it covers the indirect costs of property damage – the loss of income you would have made if your business was to continue operating as usual. And just like a commercial property insurance policy, your business interruption policy will outline what kinds of perils are covered and when it can be used.
Who needs business interruption insurance?
Every business needs money to pay for expenses – from employee wages to equipment maintenance to workspace rental costs – so every business needs a backup plan. Whether your company is big or small, for-profit or not-for-profit, you need business interruption insurance.
What kind of coverage is right for me?
The base business interruption insurance is known as business income coverage, but there are other types of coverage, too. The best type of business interruption insurance for your business will depend on a few factors.
Not sure what to consider? No need to worry – these are details your insurance broker will be able to help you navigate when building out your policy.
Location, location, location
If you were to suffer a disruptive loss, would you be able to set up at another location fairly easily to keep operating? A real estate agency or accounting firm that could work out of another office may only need coverage for expenses involved in relocating to that new spot. On the other hand, if your work depends wholly on your current location – a large manufacturing plant, for instance – you probably need coverage that extends to lost income as well, since you won’t be able to resume your operations without a substantial set-up phase.
How can business interruption coverage help me?
Basic business interruption insurance can save your business from a number of disruptive situations, like floods or vandalism, and there are extensions to help you out in more specific circumstances, too.
A fire has gutted your building
Fire is a common risk for businesses, especially when you use heat, flame, or combustible products in your operations. And fire has a reputation for destruction: it doesn’t take long for a small flame to grow into a devastating blaze that wipes out the crucial equipment and products your operations depend upon.
A big fire can eat up a lot of time and potential income, considering a major clean up and restoration can take weeks or months. Business interruption insurance can help cover that lost revenue and keep your business solvent during your recovery phase.
You’ve lost a key employee
Whether you run a small business or oversee a big operation, some colleagues are indispensable. These are the employees you count on to keep things running smoothly and successfully, and when they’re not around, you notice it.
Human resources are as important as physical assets, and if a key employee were to suffer a permanent disability, your business could stall. Replacing such an important person can bring training, advertising, and payroll expenses; the right business interruption coverage can offer welcome support after a covered accident takes out a key player in your operation.
An important partner suffered a setback
In some cases, an interruption to your business is traced to a problem with an associated property or product, not your own workspace. This is when contingent business interruption coverage can come into play: it covers loss of earnings resulting from an insured peril that damages or destroys another property or product that your operations count on.
For instance, a natural catastrophe like a flood or earthquake could sideline a crucial supplier of yours, which means you can’t produce your product until they get back to business. Natural disasters aren’t the only triggers: things like fire or train derailment can also seriously impact your supply chain or another consumer product that your business relies upon, and you may need contingent business interruption coverage to recover from the setback.
What’s the period of indemnity?
In any of the scenarios above, you’ll need to consider your period of indemnity: basic business interruption coverage usually allots 12 months of compensation, but that may not be enough for your operation to fully recover. This is a particularly pertinent concern for manufacturers.
For instance, it may only take you six months to restore your property, but when you reopen you’re not operating at the same level as you were before the loss. In some cases, it takes a lot longer to restore your revenue stream to its former glory, and you may need to shell out extra costs (think public relations and advertising) in the meantime to summon your customers back to your business.
In this case, you’d want an extended period of indemnity – an endorsement to your policy that can help cover those expenses that aren’t generally included under a basic policy. Fortunately, this is something your broker can help you with.
Are you managing your risk?
Risk is a part of business – risk management should be, too. It can be challenging to make space for risk mitigation in your daily routine, but this is a corner that shouldn’t be cut. After all, even if you have the right insurance coverage, preventing a loss is always better than recovering from one.
Risk management solutions can be as simple as improving the layout of your workspace, or as involved as launching a company-wide training program. Our Risk Services experts can help with both. In fact, we’ve made access to risk management expertise a fundamental feature in every commercial Northbridge insurance policy.