The main purpose of business disability insurance is to to replace an employer and employee's income should they be unable to work as a result of either an accident or a sickness. In fact, People tend not to spend a lot of time thinking about the financial devastation that could result from a disabling injury or sickness therefore if disability strikes, the balance between personal earnings and expenses suddenly is upset, and the threat of financial disaster can quickly become a reality.
(Written By Kyle J. Norton)
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Business Interruption Insurance Keeps Your Small Business Running During a Disaster
It's a small-business-owner's worst nightmare: a fire or natural disaster wipes out your business' headquarters, leaving you and your team with no computers, no office equipment and nowhere to work. Although the right property insurance policy would cover the physical losses and damage to your small business, getting back to serving your customers will take additional time and money.
Thankfully, there's a special kind of insurance designed specifically to help your IT business stay afloat during the worst of times. Called "business interruption insurance," it's typically offered as part of the property insurance included in a Business Owner's Policy, or BOP.
What is business interruption insurance, and how do I know if I need it?
In the event of covered property damage claim at an insured business location, this type of insurance would compensate you for lost revenue resulting from the damage to your property, as estimated by a review of your financial records. This income would allow you to ensure that your ongoing overhead and employees' salaries are covered while your business gets back on its feet. For instance, you're covered for those bills that don't stop coming just because your business is temporarily shut down, such as utilities.
Any small business that could be forced to temporarily close as a result of unexpected losses from physical property damage could benefit from small business interruption insurance. You might also see this specific coverage referred to as "business income coverage," or "earnings insurance." You may also wish to consider extra expense insurance, which pays additional expenses you may incur to keep your business running at a temporary alternative location.
What would business interruption insurance compensate me for in the event of a business shutdown?
Most business interruption insurance policies cover two or three areas:
- Based on your financial records, profits you would have earned had your business not been forced to temporarily shut down.
- Operating expenses, including utilities, that you must pay even while your business is non-operational.
- Expenses related to relocating and operating from a temporary location during repairs (this "extra expense insurance" is not automatically included in all policies, so read the fine print).
What is considered a covered business interruption?
Any business shutdown due to a claim that is covered by your property damage insurance policy should be covered by business interruption insurance. Typically, this would include fire, theft, storm damage, as well as other insured perils specified in your policy. Read your policy carefully to determine if damage due to a flood or earthquake would be covered.
Additionally, if your business is broken into and critical equipment is stolen, or your facility is damaged or vandalized to the point that it's unusable, business interruption insurance may also apply. Keep in mind, there is usually a 48-hour waiting period before coverage begins.
How much business interruption coverage do I need?
Your agent or broker can help you determine the right amount of coverage. In general, the amount of coverage you need and the premium you'll pay will be proportionate to the amount of risk inherent in operating your business. For example, a small IT firm is at less risk of a claim for fire damage than an automotive repair business that stores flammable materials on-site. Another consideration is how quickly your business could relocate permanently or temporarily and resume operations.
Jim Cochran is the owner of Business Insurance Now, a provider of business interruption insurance quotes. Jim understands what needs businesses have during a disaster and can provide the necessary small business insurance coverage to keep them afloat.
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