What is business interruption insurance?
One of the core coverages in a businessowners policy (BOP), business interruption insurance can help your business stay afloat when disaster strikes.
Business interruption insurance definition
Also known as business income insurance, business interruption insurance helps you pay bills, replace lost income and cover payroll when a covered event forces your business to close temporarily.
Business interruption insurance cost
The cost of business interruption insurance depends on how much coverage you need. To determine how much coverage you need, imagine a worst-case scenario, such as a fire that completely destroys your building and all of its contents.
Next, calculate your profits during the 12 to 24 months it might take to rebuild your business, taking the following into account:
- Expected growth and inflation
- Moving and relocation costs
- Costs associated with doing business from a temporary location, such as exterior signs and other advertising
- Bills you won’t have to pay, such as building maintenance fees
- Employee costs for staff who won’t be employed during the rebuild, including employee benefits and workers’ compensation insurance1
After determining a dollar amount (the insurance limit you’ll need), talk to your insurance provider about adding business interruption insurance to your policy. Keep in mind that business interruption insurance typically isn’t sold as stand-alone insurance; it is often sold with a BOP or as an endorsement to your commercial property insurance.
What business interruption insurance covers
If your business is forced to move or rebuild because of a disaster such as a fire, business interruption insurance can help reimburse you for:
- Lost profits
- Mortgage/rent
- Utilities
- Taxes
- Payroll
- Advertising
- Relocation fees
Business interruption insurance works in conjunction with your commercial property insurance. For instance, if your business suffers a fire, your commercial property insurance would cover the physical damages and the business interruption insurance would cover the lost net income.
Besides a fire, other examples of covered events include wind, hail, vandalism or damage to your building or equipment. Closures caused by flood, earthquakes or broken glass typically are not covered in a business interruption policy.
To learn more about protecting your business income when the unexpected happens, visit our business income coverage page.
[1] http://smallbusiness.chron.com/calculate-business-interruption-insurance-41612.html