Business Interruption Coverage Essential for Many

What if your business were shut down because of damage inflicted by a fire, storm or other peril? Profit would be wiped out. Expenses - payroll, rent, insurance and debt service - would continue unabated.

Few people would consider going without, say, fire insurance, but fire insurance pays you only for damage to your property. It doesn't pay you for lost profit due to a fire or for extra expenses you might bear in dealing with a fire, such as the cost of setting up operations in another location.

Business interruption insurance compensates you for lost income if your company can't operate due to disaster-related damage covered under your property insurance policy. The policy also covers operating expenses, such as electricity, that continue even though business activities have come to a temporary halt.

If your business facility is critical to your ability to produce revenue, you need business interruption insurance. Businesses most affected by this kind of loss include manufacturing, wholesale and retail. Businesses less affected include many service companies that experience little loss of income due to facility damage.³

The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency. Also, a real estate agency can more easily operate out of another location.¹

Business interruption coverage is not sold separately but is added to a property insurance policy or included in a package policy. Make sure the policy limits are sufficient to cover your company for more than just a few days. It can take time to recover from a major disaster.

Here are related types of coverage you might want to consider:

Extra Expense Coverage. Reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period. Usually, extra expenses are paid if they help to decrease business interruption costs. In some instances, extra expense insurance alone may provide sufficient coverage, without purchase of business interruption insurance.²

Contingent Business Interruption Coverage. For losses suffered from loss/damage to property that prevents a supplier from supplying goods and/or services to you, or that prevents customers from accepting goods and/or services from you.

Services Interruption/Off-Premises Power Coverage. For losses suffered from loss/damage to the property of any service provider, including electrical equipment & systems, fuel, water, gas, feedstock, pulp, liquid gases, sewage, steam, telephone, fiber-optic cable, telecommunications, heating, refrigeration and/or air-conditioning systems, or utility plants.

Interruption by Civil or Military Authority Coverage. For losses suffered when, as a result of loss, damage, or other event, access to your property is restricted by order or action of civil or military authority.

Ingress/Egress Coverage. For losses suffered when, as a result of loss, damage or other event, entry to or exit from your property is impaired. This can include losses from closing of roads, bridges, tunnels, hotels, airports, etc.

Rain/Weather Coverage. Reimburses you for your net loss if a performance or event is cancelled, postponed or rescheduled due to rain or other bad weather.

Businesses can and do get shut down and/or interrupted as a result of disasters, accidents and failures outside of their control. Work with your insurance professional to estimate your exposure to these types of things, and if the risk is greater than your firm can handle financially, transfer the risk to an insurance company in exchange for payment of a small, regular premium.

^{1, 2 Insurance Information Institute (www.iii.org)}

^{3 Business Insurance: A 12-Point Checklist, Lisa Chadderdon, Inc.com}