What is Business Interruption Coverage?

What is Business Interruption Coverage?

This is a coverage that is incredibly important for every single business. Without this coverage, many businesses would be shutting their doors after a loss.


The goal of insurance is to put you back as close as possible to where you were financially before the claim.


If a building burns down, you want to make sure that you get a building back that is like the one that burned. 


There is one problem there. It can take a significant amount of time to get that building back to where it was. What do you do in the meantime? 


Business Income is considered the net income the business would have received had they been able to continue normal operations, plus normal operating expenses, including payroll. that the business ends up paying out. 


Imagine if there was a situation where a business had to shut down for 3 months for repairs to be made and had 0 income for those three months. 


Could they expect their employees to go 3 months without a paycheck? Could they afford to pull that money out savings to cover the cost? Or would they have to get a loan and go into debt and pay it back with interest?


Without Business Interruption Coverage the business would have to absorb these net operating costs and lose much-needed cash flow.


Things to look for in with the coverage include:


Actual Loss Sustained- There are different ways that they determine how much they will payout. The broadest method is the Actual Loss Sustained (ALS). Unless you or your agent use a Business Income Worksheet to determine the amount needed, this is probably the best method.


Extra-Expense- This is commonly written in conjunction with the policy but it is not always done that way. Extra Expense coverage is for expenses that are above what is normal for that business to continue to do business. Renting a different building, leasing additional equipment, etc. 


Off-Premise Utility- Loss of power or other utilities to a business can seriously impair their ability to function. Some businesses are so dependent on utilities that even a brief shutdown can prove to be catastrophic. This provision has to be added to a Business Interruption policy for it to take effect.


Dependent Properties- Like Utilities, some businesses are so dependent on other businesses that if they are unable to perform it can impair the business's ability to function. This is also an add-on. 


As with all insurance policies, the wording from one policy to another can be different. For this coverage to take effect the event that causes the loss has to be a “covered loss” on the policy. 


If you have questions, feel free to give us a call or send us an email. We would love to hear from you!