2020 has been an uncertain year, to say the least – not just for individuals but for businesses as well. There have been countless business interruptions with many leading to owners having to close their doors to the public. It’s not just COVID-19 that resulted in all this, but also numerous counts of civil unrest, natural disasters, and more.
That is where business insurance comes into play; but more importantly, business interruption insurance, aka business income insurance. Here, we’ll discuss how this insurance can be crucial toward ensuring business continuity for you and responding to potential losses accordingly.
Business Interruption Insurance – What Is It?
This is a type of insurance coverage that kicks in if your business loses income because of unforeseen circumstances; specifically any unexpected disasters. Examples may include flooding, damage from hurricanes, fires, or something like COVID-19.
It is important to note that this insurance coverage isn’t sold exclusively or separately but is usually included in a comprehensive package, as an add-on, or as a rider. Business interruption clauses look something like this:
The Insurer shall pay for actual business income loss the insured sustains due to necessary suspension of “operations” during the period of “restoration.” Suspension must be a result of direct physical loss, damage, or destruction to the insured party’s property and result from a covered cause.
This statement suggests that there are several key conditions that need to be fulfilled for business interruption insurance to kick in. Some key elements to keep in mind include:
Actual Business Income Loss
Business interruption coverage is only limited to the actual loss your business sustains because of an uncertain disaster and it results in an interruption of business. The insurer will pay what it owes based on the business’s past performance, or the policy limit.
Business income generally includes:
- Net income
- Operating expenses, including salaries and overheads that you have to pay despite suspension of operations
The above statement suggests that insurer will only be liable to pay for income lost during the period of restoration, i.e., the time a business needs to bring the damaged or destroyed property back into operation.
This period begins the moment a loss or damage occurs and extends to the time until which the property should be rebuilt or repaired at reasonable speed. It is important to note that if the policy expires before period of restoration, it doesn’t mean an end to the contract. The coverage will continue till the limit is reached or the restoration period is complete.
Contingent Business Interruption (CBI)
This is insurance extension that covers loss of business income due to damage to asset or property owned by a third party. The third party may include:
- Lessees and more
Only “direct” relationships are considered in CBI unless specifically identified.
Civil or Military Authority Business Interruptions
If a business sustains any actual loss of business income because of civil or military prohibitions, the insurer shall cover said losses. This is a rather common clause and is found under most policies where the insurer guarantees reimbursement against business interruption.
Coverage extends up to 30 consecutive days unless otherwise specified.
If you’d like to learn more about business interruption insurance or are simply looking for ways to protect your business against uncertainties, get in touch with us via call or email. We’ll help you keep your business safe and ensure continuity, all while helping you maintain your legacy!