Business interruption insurance replaces income lost by business owners due to certain covered events. These events include fire and water incidents, as well as certain other natural disasters. However, it is not a distinct policy. Instead, it is an add-on that is included in a comprehensive property policy or a property-casualty policy.
The following are some of the items covered by business interruption insurance.
Lost Revenue
If the building in which you conduct your business is destroyed during a covered event, you will have to halt your business activities. Naturally, this will lead to reduced sales. In such situations, business interruption insurance coverage will compensate for the lost revenue. It will also ensure that a temporary shutdown will not become permanent if you cannot keep your business open.
Rent or Lease Payments
Certain events, including rain or fire outbreaks, can result in the temporary shutdown of your business. Unfortunately, this does not mean a break from your rent or lease payments. If you have business interruption insurance, it will kick in and cover your rental and lease payments until your business is back on track.
Relocation Costs
Perhaps you need to change your business location due to a disaster. In such a situation, business interruption insurance will pay for your moving costs. It will also pay for the rent of the new location.
Employee Wages
To retain your employees while your business is temporarily closed, you will have to keep paying their wages or salaries. Even though the business is not earning revenue, you must not stop fulfilling your duties as their employer. However, if you are not generating revenue, how will you fulfill these obligations? Purchasing a business interruption insurance policy will cover your employees’ wages for up to a year.
Taxes
Another obligation you cannot miss because of a temporary halt to your business is taxes. If you have business interruption insurance, it will also cover your tax obligations during the interruption.
Loan Payments
As a business owner, you certainly have taken loans. Unfortunately, you might be unable to meet your loan obligations if your business is temporarily closed. In such situations, you can rely on your business interruption insurance to repay your loans.
What Is Not Covered
Business interruption insurance does not cover every unfortunate situation. For instance, it does not cover the following:
Property Damage – It is important to note that business interruption insurance covers the financial effects of having to shut down your business temporarily. As a result, it will not cover the repair of your business location. For this purpose, you need to purchase a comprehensive property insurance policy.
Extra Expenses – While business interruption insurance covers normal business expenses during a temporary closure, it does not cover additional expenses. These extra expenses include overtime payments, the cost of temporary workers, etc.
Other situations that are not covered by business interruption insurance are:
- contingent business interruptions
- interruptions unrelated to property damages
- damages incurred from flood or earthquake
- interruptions caused by infectious diseases, including pandemics such as COVID-19
To become eligible for a claim on business interruption insurance, the temporary shutdown must have lasted for a minimum of 72 hours. In addition, your business must shut down completely and not just scale back operations. If you want to know more about business interruption insurance, we can help you at Scautub Agency. Contact us today to learn more!