Everything You Need to Know about Business Interruption Insurance

The thought of shutting down your business for any time is anxiety-inducing for most business owners. However, it is an unfortunate reality for many after suffering a loss. And while business interruption insurance is not something that immediately comes to mind when individuals are setting up their businesses, it should not be overlooked.

Here is what you need to know about this critical insurance policy.

What Is Business Interruption Insurance?

Business interruption insurance protects business owners from any lost income or additional expenses that may result from a covered peril.

For example, suppose a fire burns down the unit you are leasing for your retail business, and you need to close while the unit is being repaired. A business interruption policy would cover any lost income during this time, ongoing expenses such as rent, payroll, and taxes, and additional expenses such as the cost of moving into a temporary location, if applicable.

Nonetheless, some events are not covered by this policy. Business interruption does not cover damage from earthquakes, floods, infectious diseases, or undocumented income, so you should speak to a trusted agent to fill in those coverage gaps, if possible.

How Does Business Interruption Coverage Work?

If your business has fewer than 100 employees and less than $5 million in revenue, you may want to consider a business owner’s policy or BOP. This policy offers commercial property and general liability coverage as well as business interruption, ensuring your business is fully protected.

Typically, when setting up this policy, your agent will ask you to consider some of the following data to get an idea of how much coverage you may need for business interruption: 

• What your estimated future profits will be
• How long you think it may take to get your business back up and running if a loss occurs
• How protected your space is from burglary, fire, vandalism, etc.
• If temporary spaces for relocation are readily available in your area

Your agent can help you determine the appropriate coverage limit based on this information. It is important to note that business interruption policies have a period of time the insurance company will pay for damages, called the restoration period. After that, it is limited to a certain number of days. It can vary by company, but typically this period ranges between 30 days to 1 year.

However, some insurance companies will extend this time by endorsement, so it is best to check with your agent on what option is appropriate for your business. There is typically a 48-72 hour waiting period before the restoration period begins, so you will want to ensure you have the resources to handle any expenses you may incur during this period.

How Much Does Business Interruption Insurance Cost?

Most small businesses can expect to pay somewhere between $500-$3,000 for business interruption insurance. However, like most other commercial policies, a business interruption insurance policy’s price depends on a few different factors.

First, the type of business you own will affect the price of your policy because some industries are riskier than others. For example, a restaurant will have more fire risk than a retail store selling clothes. Since there is a greater likelihood that the restaurant will have a business interruption loss than the clothing store, the price of their policy may be higher.

Similarly, the location of your business will also affect your price, as some locations are prone to more losses than others. Some parts of the country are more likely to experience wildfires, hurricanes, or other perils that can cause the need for a business interruption payout. As such, businesses in these areas may see their risk reflected in the price of their policy.

In addition, since your business’s revenue influences the coverage you may carry, it is no surprise that it will also affect the price of your policy.

Do I Need Business Interruption Insurance?

While business interruption insurance is not often required to run a business, it is very much recommended. This coverage allows businesses to stay afloat after a loss that could otherwise be financially devastating. Your financial obligations do not stop when there has been a loss, and your employees will still need to be paid and loans must be satisfied.

Unless you have put money aside to pay these expenses out of pocket, a business interruption policy is the only way to ensure there is minimal disruption to your company. Since it is often included in a business owner’s policy, carrying at least some coverage is a good idea.

In Conclusion

When navigating the insurance policies needed for your business, it is best to speak with experts. The licensed specialists at Lead Carpenter Kemps have served the California community for decades and have the industry expertise you need to keep your business up and running. Contact us today for a quote!