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Every Business Owner Needs Insurance To Prepare For Interruptions

Operational disruptions can devastate any business from a small startup to an established large corporation. One way to offset the loss of revenue or access to the business space is with business interruption or BI coverage. Many business owners underestimate the true costs of any form of interruption, and others simply do not think that it will happen to them. Floods, fires, pests and many other types of incidents can lead to a temporary interruption of operations.

About 40 percent of businesses in the United States have experienced a form of business interruption within the past five years. Also, research shows that more than 65 percent of small businesses do not have BI coverage. 

What Is Business Interruption Insurance?

If a company has to shut down its physical business or halt operations for a period of time, this coverage applies. It is used when a business shuts down because of disaster-related damages, which are usually covered by property insurance. Cyber risks, supply chain interruptions and natural disasters are a few examples. While the damage to the business itself may be covered by property insurance, lost revenue and other expenses related to temporarily closing are only covered by a BI policy. 

BI coverage usually includes expenses that exceed normal operation costs during the interruption period. For example, if a business owner has to pay more to temporarily rent a different office building, the increased rent would be covered. Also, if a business such as a factory that cannot move must cease operations temporarily, the lost revenue from production and the wages of employees would be covered. Other expenses such as employee meals, overtime and most equipment purchases are covered.

When Does BI Coverage Start?

The following three circumstances activate a BI policy's payout terms:

  • The property sustained physical damage because of a loss that is covered under the property insurance policy, and the damage prevents customers or employees from accessing the building.
  • There is enough physical damage to the building that it must suspend operations.
  • The surrounding area was shut down by the government because of peril-related property damage, and the order requires customers and employees to avoid entering the premises.

With most policies, there is a waiting period of a few days or more. The policy's payout limit is usually about 12 months and compensation is distributed as needed during that time. Some policies specifically address government shutdowns and blocked access to the premises of a business. When purchasing a BI policy, be sure to keep financial records updated at all times. These are requested when a business owner files a claim against a BI policy. To learn more about this type of coverage, ask your agent about business interruption insurance.

Thank you for visiting the Partners Insurance Agency blog. We hope you found our content helpful and informative.

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