What Is Business Interruption Insurance?
Business Interruption Insurance is an insurance policy you don't hear much about, but it's vitally important to many small businesses. In fact, many businesses already have it. This policy is often included in Property Insurance policies (or in the discounted Business Owner's Policy package).
As the name suggests, Business Interruption Insurance covers you when your business is forced to temporarily shut down. Specifically, it insures your business's income. If your business can't perform its usual operations due to an event covered by your Property Insurance policy, your insurance benefits help you meet your expenses.
Here's how it works.
Let's say you run an advertising firm. If a fire in your building burns down your office, it could take months for your operation to return to business as usual. After waiting for repairs to be completed, you’ll have to set up a brand new office with new furnishings and equipment.
During the time you're shut down, you still have to pay employee salaries, taxes, and other costs. If fire is a covered peril on the Property section of your BOP, Business Interruption Insurance can cover your income during this period so you can still pay your bills.
For more information, check insureon’s video explanation of how Business Interruption Insurance protects small businesses.
Business Interruption Insurance Offers Supply Chain Coverage for Small Businesses
Business Interruption Insurance can also cover lost income when your supply chain is interrupted.
Say you run a grocery store specializing in local and organic foods. A storm blows through your area, but your business is spared from any major damage.
Unfortunately, the farmers who supply you are hit hard by the storm. The co-op that delivers your food won't be able to make its next delivery. What does a grocery look like without any food? It looks like a business that won't be making any money.
When a problem in your supply chain causes your business to shut down temporarily, Business Interruption Insurance can reimburse your business for the income it loses. This supply chain coverage is called Contingent Business Interruption coverage.
In an interconnected modern economy, this coverage is becoming more and more important. Even if a major storm doesn't directly affect you, it can wreak havoc on your supply chain, leading to major losses in revenue.
How Much Business Interruption Coverage Do I Need?
Imagine your business suddenly loses all sources of income. Ask yourself: what bills and expenses would I still have?
You might have to pay rent, taxes, loan repayments, wages / salaries, employee healthcare, utilities, software subscriptions, and other costs. Add up these costs and figure out how long a major event would cause you to shut down.
When you buy Property Insurance through a Business Owner's Policy, you may be able to get up to 12 months of Business Interruption Insurance. If you buy Property Insurance separately, you may be able to get longer income protection.