Are You Covered in Case of a Business Interruption?

If a fire damages your building and you can’t operate your business, what would you do next? You probably would like to move to a temporary location while repairs are made to your permanent place of business.  How will you pay for this?  A traditional Property Insurance policy generally does not cover the costs of moving your business or the loss of income if your business must temporarily close.

However, Business Interruption Insurance, also referred to as Business Income coverage, does cover these costs.  Generally, this type of coverage is not a stand-alone policy, but is part of a traditional Property Insurance policy.

What is Included in a Business Interruption Insurance Coverage?

The following is covered under policy with Business Interruption coverage:

  • Covers the profits that would have been earned based on previous financial records had the disaster not
  • Covers operating expenses, such as utilities, that must be paid even though you cannot operate your business.
  • Covers expenses of operating in a temporary location while repairs to your permanent location are

Considerations for Business Interruption Insurance

Here are some things to think about if you’re considering this type of policy:

  • Business Interruption Insurance generally cannot be purchased on its own; it must be added to a Property Insurance policy or included in a Business Owner’s Insurance policy. Of course, if you own a captive insurance company, your captive can issue a stand-alone Business Interruption insurance policy.
  • Policy limits should be enough to cover the time needed to rebuild your permanent location or to restore your business to its normal operations. Generally, the business must be closed for several days before coverage begins, and Business Interruption insurance does not pay for those days
  • Premiums depend on the risk of disaster to the This may depend on the business location, nature of the business, and how easily the business could function at an alternate location on a temporary basis.

What is Extra Expense Insurance?

Extra Expense Insurance covers expenses that Business Interruption Insurance may not cover.  For example, not every Business Interruption Insurance policy will cover the cost of renting a temporary place or equipment while your property is repaired.  However, Extra Expense Insurance will cover those costs.  Not every business needs Extra Expense Insurance.

However, if your business cannot afford to close for even a short period of time, you may need Extra Expense Insurance.  Some insurance companies may sell Business Interruption Insurance and Extra Expense Insurance together, while others sell them separately.  You need to consult with an insurance professional to help determine whether you need these coverages and whether your policy includes one or both.

Insurance experts estimate that Business Interruption and Extra Expense Insurance are among the most, if not the most, important coverages.  Yet business owners often overlook them.  Since Property Insurance only covers the cost of physical loss or damage and the contents of a business in the event of a disaster, Business Interruption and Extra Expense coverage is invaluable in replacing lost income, plus other expenses, incurred as a result of physical damage to your business location.

Consult RMC Group today to learn about our business continuity resources at 239-298-8210 or [email protected]. If this article was helpful, leave a comment and sign up for our monthly newsletter here to be the first to receive new articles we put out.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2007-2010, 2012 Zywave, Inc. All rights reserved.