Understanding Business Interruption Insurance

As a business owner, you may be familiar with the need for liability insurance to protect yourself and your business from lawsuits caused by injuries or accidents. But how do you protect your business’s income from outside forces that affect your productivity, supply, and revenue?

Picture this: You've built your dream business from the ground up. It's thriving, and you're enjoying the fruits of your labor. But then, disaster strikes. Whether it's a natural calamity like a hurricane, a fire, or a global pandemic that forces you to shut your doors temporarily, your income takes a nosedive. That's where Business Interruption Insurance comes in.

What is Business Interruption Insurance?

Business Interruption Insurance, also known as Business Income Insurance, is like a safety net for you and your business. It's an insurance policy that provides financial support when your business operations are disrupted due to unforeseen circumstances, such as natural disasters, accidents, or other covered perils.

In many ways, Business Interruption Insurance is similar to personal Long-Term Disability Insurance but protects the income generated through your entire business rather than your personal income alone. Essentially, it helps replace the income and revenue your business would lose during the downtime caused by outside events.

How Does It Work?

Business Interruption Insurance begins with a “trigger event,” which is an unexpected incident such as a fire damaging your store or a government-mandated shutdown during a pandemic that interrupts your business operations. This event sets the insurance process in motion and is the beginning date of your insurance claim.

Similar to personal disability insurance, there is a waiting period between the trigger event and when your business can collect benefits from the policy. This waiting period can range from a couple of days to a couple of weeks, so it's important to be financially prepared to handle immediate expenses during this time. Thankfully, most policies only require a waiting period of 48-72 hours before benefits will be paid.

Once the waiting period is over, the “business interruption period” begins. This is a defined timeframe within which the policy covers your lost revenue and usually extends until you can reasonably resume your business operations.

Beyond income loss, Business Interruption Insurance may also cover extra expenses. These are costs incurred to minimize the disruption to your business, such as renting temporary office space or investing in advertising to attract customers back. Every policy comes with a coverage limit, so it’s crucial to fully understand these limits when purchasing your policy as it will affect the level of protection you have.

What Does It Cover?

Business Interruption Insurance covers a range of scenarios. Its primary coverage reimburses you for lost income you would have earned if your business were operating normally. The insurance can also cover ongoing operating expenses like rent, utilities, and employee salaries during the downtime.

If you need to temporarily relocate your business due to a fire, flood, or other peril, the policy can cover the costs of setting up shop elsewhere. If your business owes loan payments, it can help cover those payments. Business Interruption Insurance may even cover the taxes you owe during the interruption period.

Now, just like any insurance, Business Interruption Insurance has its limits. It usually doesn't cover business losses due to fire or building problems that result from your own poor maintenance of the property. The coverage also doesn’t cover power outages unless they're directly caused by a covered event, like a severe storm.

After the COVID-19 pandemic, many insurers added pandemic exclusions. However, it's worth checking with your provider as some policies may include pandemic coverage as an add-on.

Protection and More for Your Business

In the world of business, anything can happen. That's why having a safety net like Business Interruption Insurance is a smart move. It ensures that you and your business won’t lose the income and progress you’ve worked so hard to achieve if the unforeseeable happens. Just remember, every business is unique, so it's essential to customize your coverage to suit your specific needs.

This article is a service of Corina Colan, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy Planning™ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning™ Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.