After a major disaster, it can take more time than you might expect to get your business back on track. Many businesses don’t survive because they either lack business interruption coverage or have inadequate limits for that coverage.
A hurricane hits. A tornado strikes. A fire rips through your premises. If your business is marked as unsafe after a catastrophe, what recourse do you have? Will all be lost? Not necessarily, if you have business interruption insurance.
Unfortunately, many entrepreneurs are unaware of the true cost and impact a catastrophe can have on their business operations. The Federal Emergency Management Agency reports that nearly half of businesses don’t reopen after a catastrophe or other disaster and another 25% fail within a year. Many businesses don’t survive because they either lack business interruption coverage or have inadequate limits for that coverage.
What does business interruption insurance cover?
Also known as business income insurance, business interruption insurance is designed to assist with lost revenue that a business suffers after a covered peril. For example:
- It helps to cover the expense of temporarily relocating a business due to disaster-related damage covered under the insurance policy, such as a fire.
- It helps to cover the income that would have been earned had the disaster not occurred. Business income is based on financial records and generally involves looking at the previous 12 months and estimating earnings for the upcoming 12 months. Contact your insurance professional for assistance with business income calculations and maintaining supporting documentation.
- It helps to cover operating expenses, such as utilities, payroll, a mortgage or rent, which may need to continue even though business activities have come to a temporary halt.
- It can assist with advertising costs incurred due to the temporary relocation of your business.
It’s important to note that business interruption insurance does not cover losses suffered due to pandemics. Business interruption insurance is an endorsement to your underlying commercial property/casualty policy or package policy, such as a business owners policy. It normally requires some form of property damage to trigger the policy. Additionally, most business interruption policies have specific exclusions related to disease, viral or bacterial outbreaks.
When coverage starts… and ends
Business interruption coverage isn’t sold separately; it’s added to a commercial property insurance policy or included in a package policy. There may be a waiting period of up to 72 hours before business interruption coverage kicks in, depending on how your policy is written.
In order for the coverage to be triggered, your business must suffer an actual loss of business income as a result of suspended operations during a period of restoration. However, if the business isn’t continuing at the affected location, and isn’t going to be repaired or replaced, there’s no period of restoration. Therefore, there would be no business income coverage.
After a major disaster, it can take more time than you might expect to get your business back on track. Coverage extends to time periods and financial limits that are specific to the policy. Talk to your insurance professional about these policy limits and make sure they adequately protect your business income in the event of a catastrophic loss. You may want to consider widening the standard coverage by extending the time to restore or income limits.
Here’s something else you may want to consider: contingent business interruption coverage. This form of small-business insurance is typically added as a rider to a business interruption insurance policy. Contingent business interruption coverage can help if you lose significant revenue and are unable to continue to do business after a key supplier, business partner or customer shuts down. It provides cash to help you cover payroll, rent and other expenses necessary to keep your business open.
What to do after a disaster hits
If a disaster impacts your business, your first priority, after ensuring everyone is safe, should be to file a claim with your insurance company. If possible, take photos to document the damage. By streamlining the claims process, you’re likely to receive the money you need and lessen the impact on your business.
Next, reach out to everyone closely involved with your business, including employees, vendors and customers. Let them know what happened, explain the steps you’re taking to address the situation and tell them when you expect to reopen. Finally, consider setting up an alternative business location.
By filing a claim as quickly as possible and staying in communication with everyone impacted by the business closure, you can help to minimize the financial damage to your company.
If you’re not sure how much coverage or the types of riders you may need, speak with your insurance professional.
Call us for more information
We’re ready to assist you in the case of a disaster, reach out to our Business Insurance team.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.
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