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Why business Interuption Insurance
Whenever a business suffers material damage loss to property, there will be a resulting financial loss and disruption to business. If the business closes down completely while the premises are being repaired, it may lose out to competitors. A quick resumption of business after a disaster is therefore very essential.
Business Interruption Insurance is probably the most critical form of insurance available to protect you at a time when you really need to keep your business alive following an indemnifiable event. It is as vital to your survival as a business as property insurance.
Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted due to direct physical loss or damage of insured property. It covers loss of income and certain operating expenses if a disaster ever forces you to temporarily close shop.
It covers the financial loss resulting from the inability to trade following a material damage loss caused by fire or any other covered perils. It covers lost income, fixed operating costs and increased cost of working during the temporary closure of the business.
Typically, your coverage will end after business operations resume. A standard BOP may offer 12 months of business interruption coverage. There is however also the option to purchase extended coverage beyond the standard coverage
WHAT YOU NEED TO KNOW
How is lost Revenue covered?
The profits that would have been earned during the time that the business is out of action (based on previous months’ income).
What is Indemnity or Restoration Period?
The period during which the business’ results are affected due to a loss or damage, beginning with the date of the loss or damage and ending not later than the maximum Indemnity Period.
What is Additional Increased Cost of Working?
The reasonable additional expenditure incurred to avoid or diminish any further reduction in turnover following a loss even if the amount payable exceeds the saving made. Inevitably there may be extra expenses that will not necessarily pass the ‘economic test’ for additional expenses, but may be reasonable in terms of medium-long term interest of the business.
Is business interruption insurance a necessity?
Whether you need business interruption insurance or not depends upon a number of factors. If you're sure that you could survive being closed for a few weeks or months and then pick up where you left off, that's great. You do not need Business Interruption Insurance. However, if you carry a lot of stock, or require substantial premises in order to operate, business interruption insurance could be the only way to stay in business long enough to get back on your feet.
How long does business interruption coverage last?
Most business interruption policies have Indemnity Period. This is the length of time that a policy will help pay for lost income and expenses while the business is being restored. Policies typically limit the period to a specific number of consecutive days, but it is possible to obtain an extended period of time. Sometimes business interruption policies have a “waiting period,” which is a specified number of days after the physical damage occurs, before the policy’s coverage for business interruption loss is triggered.
How much business interruption insurance do I need?
The rule of thumb is to use a business’s gross earnings and projections to estimate future profits and determine the right amount of coverage.
How much does business interruption insurance cost?
The cost of business interruption coverage depends on several factors, including industry, number of employees, amount of coverage, your location, and prior loss experience.
What triggers a business interruption claim?
Generally, a business interruption loss is only covered if it is the result of covered physical loss or damage to property. Your policy will describe the specific events that trigger your business interruption coverage.