Could your business withstand a disastrous event that forced you to close for an extended period of time? For most businesses, this can significantly set your business operations back and have long-lasting consequences.

Business owners who are worried about this might want to consider business interruption insurance, a type of commercial insurance that can help a company stay afloat and get back on its feet following a catastrophe.

What is business interruption insurance?

Business interruption insurance is designed to protect a business financially after a catastrophic event that’s been indicated in their policy. This insurance can help replace the income a business would otherwise have earned had it been able to run normally, and it can also help with restarting costs.

Who needs business interruption insurance?

Most businesses can benefit from business interruption insurance because almost every business would lose income if it were forced to close. However, the amount of coverage a business needs can depend on factors like how long it will take to reopen and how dependent they are on their physical business property.

Here are some questions business owners can ask themselves before speaking with an insurance specialist about business interruption insurance:

  • How much income would I lose if my business was forced to shut down?
  • Are we located in an area that is particularly prone to disasters like wildfires, floods, or winter storms?
  • How dependent am I on my current location? Would I be able to relocate if needed? Could I operate remotely? Do I have other locations that could handle some business operations?
  • If I had to move to another site, how much would it cost to equip it with everything needed to run my business normally?
  • How critical are my supply chains? Would I be able to get supplies and materials from other sources?
  • How broad is my customer base? If one of them was unable to buy from me, would that set my business back financially? Do I have other revenue streams?
  • How long would it take to restart operations following a worst-case disaster scenario? (The complete loss of all the business’s physical assets)
  • What disaster preparedness measures do I have in place that can help mitigate the impact of a catastrophic event?
  • Which fixed costs would I have to continue to pay even if I had no income?
  • Which employees would I need to retain to restart operations quickly and effectively?

Having the answers to these questions can help determine how much business interruption insurance a company needs and can also assist with developing a disaster response plan.

It’s important to always provide your insurance specialist with accurate information when it comes to your business, especially your income, to ensure your coverage aligns with your needs. If there are any changes to your business income you should notify your insurance provider.

What events can business interruption insurance help cover?

Insurance policies can vary widely from one provider to the next. It is important to recognize that every policy has exclusions; to ensure that you have the coverage you need, consider your company’s most prevalent threats and the ones that would be most disruptive. These are some events and risks that a policy might cover:

  • Damage from fires, including smoke, water, and structural damage.
  • Disruptions in the supply chain that make it impossible to carry out your operations.
  • Extended outages of electricity or other utilities essential to normal operations.
  • Water-related damage stemming from leaks.
  • Various natural disasters, including hurricanes, earthquakes, tornadoes, severe storms, and hail.
  • Vandalism or theft that significantly disrupts business activities.
  • Business downtime resulting from cyber-attacks.

It’s important to always speak with your insurance specialist to ensure your coverage aligns with your business’s needs and what events you’re covered for.

What is covered by business interruption insurance?

Business interruption insurance can provide a safety net that helps a business operate financially as though it were running normally. These are some of the costs that a policy may cover:

  • Lost income during the period of the shutdown.
  • Fixed costs such as rent, mortgage, or loan payments, security costs, and employee wages and benefits.
  • The cost of moving to a temporary location and setting up there.
  • Expenses involved with notifying suppliers and customers about the incident.

By helping with these key expenses, business interruption insurance can help you recover from an otherwise disastrous event while allowing you to retain staff, protect your credit score, and enable you to maintain good relationships with suppliers and customers.

Ensure you’re protected with business interruption insurance

As always, it is essential to consider all risks that your business might be exposed to and to assign dollar amounts to them as accurately as possible. Working with a professional who specializes in risk assessment, such as a risk management consultant, can be helpful in quantifying your business’s potential losses if you are forced to halt your operations.

Unfortunately, there are events that can impact your business that are out of your control. You can, however, prepare yourself as best you can. Having the right coverage in place can make a huge difference. To learn more, visit our business interruption insurance page.

This blog is provided for information only and is not a substitute for professional advice. We make no representations or warranties regarding the accuracy or completeness of the information and will not be responsible for any loss arising out of reliance on the information.