Business Interruption Insurance Policies – Why You Need One


Business Interruption Policy

Every business, no matter how large or small, is exposed to certain unexpected risks and can be seriously affected by certain common and extremely dangerous natural disasters, such as earthquakes and floods. These unwanted events can destroy a company’s most valuable assets (buildings, equipment, etc.). If this happens, the company won’t be able to continue operating and will lose significant amounts of money in the form of income. This, on the other hand, will reduce its ability to pay wages, meet loan repayments, repay creditors, pay rent, and cover many other expenses.

Yes, running a business is a risky endeavor. That’s precisely why buying a business interruption policy is a must. Business interruption insurance is a type of business insurance that covers the loss of income that a company suffers after a catastrophe. Unlike business property insurance, business interruption insurance doesn’t cover the physical damage to the business, but the profits it would’ve earned if the disaster didn’t occur.

The purpose of a business interruption policy is to place the insured into the same financial position it was before the insurable events occurred. A business interruption insurance policy usually covers: the profits that would’ve been earned during the time the company recovers (based on previous months’ income); the fixed costs; the expenses associated with moving to and operating from a temporary location; and other costs and expenses. This is immensely helpful because without an operating business, income isn’t generated, but certain fixed costs (rents and wages) are still incurred.

When it comes to business interruption insurance policies, every business owner should know that a policy will pay for the interruptions to the business for a certain period of time known as ‘indemnity period’. The business owner is the subject who selects the indemnity or benefit period. According to many experienced business insurance brokers, the indemnity period should be carefully calculated so the business can remove debris, address environmental issues, make strategic decisions, obtain planning permits, repair old as well as purchase, install, and test new equipment, repair facilities, regain customers and market share, etc.

If you own a small or medium-sized business and plan to purchase a business interruption insurance policy for the very first time in your life, I advise you to consider the option of hiring insurance brokers or at least consult an insurance adviser. Setting up the perfect cover for your unique circumstances can be a complicated and time-consuming task, which is why you should avoid making costly mistakes by leaving this matter in the hands of professionals.