When you started your business, you likely weren’t thinking about lost income. However, natural disasters can significantly harm your company. In this article, we explain what you should know about business interruption insurance.
What Is Business Interruption Insurance?
Business interruption insurance is a policy that comes into play if a natural disaster causes damage to your company. It’s typically part of a business owner’s insurance and can support your organization if it has to close temporarily.
What Does Business Interruption Insurance Cover?
If your insurance company covers the peril that led to your business interruption, you can expect them to cover most of the following items:
Profit
Due to interruption, your policy will likely offer a reimbursement for the potential profit you’re missing. Insurance companies determine the amount of reimbursement based on your business’s prior performance.
Fixed Costs
Policies may also cover your business’s fixed costs. Fixed costs could involve any number of expenses, including salaries and property taxes. Your policy could also cover a mortgage, lease, and rent payments.
Employee Wages
Losing employees is difficult – especially when you’re already struggling with an interrupted business. If you want to retain your team, a business interruption policy could help you make payroll while you cannot operate.
Taxes
Unfortunately, you’ll still have to pay taxes during a business interruption. Including tax coverage in your business interruption policy will ensure that you can pay taxes on time and avoid penalties.
Loan Payments
Just like taxes, loan payments don’t stop when disaster hits. Business interruption insurance can help you make loan payments while you’re not generating income.
Temporary Locations
If you have enough coverage, your policy could potentially pay for you to set up in a new place. Some policies cover the costs of moving to and operating from a temporary location, including any equipment you need.
Training Costs
Depending on the level of the disaster, you may need to replace some of your machinery. A business interruption insurance policy could reimburse you for new machinery and the training costs associated with learning new equipment.
Extra Expenses
Your insurance policy could reimburse extra expenses that don’t fall under fixed costs, so long as the expenses are within reason. In this instance, these expenses are anything that helps you get your company back on its feet.
What Does Business Interruption Insurance Not Cover?
While business interruption insurance covers various costs, there are some costs that your policy will likely exclude. Even if your insurance company covers the event or loss, it will probably not replace broken items like glass or furniture.
There are also some events that insurance companies do not cover. You may need a separate policy for flood and earthquake damage, as insurance may not cover it. The same holds true for interruptions from pandemics, viruses, or infectious diseases.
Finally, your policy will not provide coverage for utilities or reimbursement for undocumented income. To get reimbursement for potential profit, you must list out all of your income on your business’s financial records.
How Much Coverage Do You Need?
To determine how much coverage you need from your business interruption insurance, you must examine your current finances closely. It could be helpful to use your gross earnings and projections to estimate future profits and choose your coverage level.
Consider how long it would take for your business to recover from physical loss or damage. If the money you currently have in your savings account isn’t enough to cover potential losses, you may benefit from a more comprehensive policy.
You should also consider if there’s another location in your area that you could use while your company gets back on its feet. If there is, you will want to ensure that your policy contains coverage for a temporary location.
How Long Does Business Interruption Insurance Last?
Your business interruption insurance will use a restoration period, which is the length of time your policy will pay out until you can restore your business. This period typically lasts about a year, with a 48- to 72-hour waiting period before the restoration period starts.
Speak to the Professionals
Business interruption insurance is beneficial for those that own their own company. The policy can supplement and reimburse profit, fixed costs, employee wages, taxes, loan payments, and more.
While necessary, it can be challenging to file a business interruption claim. However, we can help you determine your options based on your insurance coverage. We will investigate, negotiate, and litigate your case to get you the results you deserve.
Schedule your free case review today with our Hollywood property damage attorneys. When insurance companies fail, Klotzman Property Damage Law succeeds.
