Business Interruption Coverage

Businesses May Face Failure When Forced to Close Temporarily After A Loss

How long can your business afford to be without revenue?

While many business owners understand that commercial property insurance will help repair and replace their damaged property after a loss, few realize the massive gap that looms ominously in their commercial coverage.

Look again, this time closely at the phrase "repair or replace damaged property after a loss". What's missing? If you said business interruption insurance your business either already has this protection or you made a lucky guess.

When planning an insurance package most business owners don't think about what could happen to their business while the damaged property is being repaired following a loss. Unfortunately that oversight can be disastrous to the business' ability to recover and ultimately to reopen.

Damaged property cannot be fixed overnight. Repairs can often take weeks, months or longer. Lengthy repair times can kill a business, small and large alike. If your business' doors are closed for a long period of time that means it's not generating revenues which can be the death knell for most businesses.

Business owners often fail to realize the effect a long closing of operations will have on their business' chances for long-term recovery. Think about this question thoughtfully: How long could you afford to stay in business without money to pay new and recurring expenses?

If you answered only a short period of time, less than a month, then you need to get a business interruption policy immediately. Also called business income insurance, this valuable coverage kicks in when your business experiences a covered property loss such as a devastating fire. Depending on the policy, this critical coverage will provide an amount equal to your business' lost monthly net income and normal monthly expenses for a defined period of time. These monies help keep the business afloat while it recovers.

Policies that include valuable "extra expense" coverage will also pay expenses necessary to minimize the overall loss to your business, such as the cost to rent a temporary facility.

Business interruption coverage will pay covered expenses during a "period of restoration", a set period defined in the policy that usually begins 72 hours following the loss and ends when the business reopens or the restoration period expires, whichever comes first. Endorsements may be available to extend the restoration period, a valuable investment for business owners who cannot predict how long the recovery process may take. Ask your insurance agent about adding this endorsement.

Businesses frequently face other difficulties following a catastrophic event including customers and suppliers not returning, cancelled contracts or the competition takes over your business' former clients. It will take a Herculean effort to get your business back to normal after a loss, an effort that can be helped considerably by the financial assistance provided by a business interruption policy.