New England is no pushover when it comes to braving unfavorable snowy conditions. However, this winter is proving to be a formidable opponent. USA Today reports that in mid-February, a blizzard with the strength of a Category 2 hurricane hit New England. Even Boston has experienced historic snowfall for February at 58.5 inches.
Between the ice, snow, and howling winds, it's a wonder anyone is managing to get work done, and for some businesses, the extreme winter conditions are getting in the way. Businesses may be put on hold because of…
- Downed power lines caused by ice.
- Collapsed roofs from the snowfall.
- Supply interruptions.
What happens when one of these events grinds a business to a halt? Are small-business owners supposed to tap their feet and wait for the thaw while their bank account dwindles?
Not if they have Business Interruption Insurance. Let's see what this coverage can do.
Business Interruption Insurance: A Primer
In a nutshell, Business Interruption Insurance covers your lost income when a covered Property Insurance claim puts your business on hold. Sure, your Property coverage can pay for physical repair costs, but it can't cover the income you miss out on when a covered event forces your business to a standstill. Only Business Interruption Insurance can cover your lost revenue, and that's why it's a good thing this coverage is usually included in your Business Owner's Policy as part of its Commercial Property Insurance. (More on that in our video tutorial “What is Business Interruption Insurance?”)
That's easy enough to remember, so let's get down to brass tacks. Here are the key points you need to know about this policy:
- Business Interruption only kicks in when a covered Property event causes the interruption. The events covered by your Property policy may vary. Some plans may cover damages caused by snowfall, so interruptions caused by that kind of damage would also be covered. If you have questions about your policy's inclusions and exclusions, ask your insurance agent.
- Business Interruption covers the profits you would have earned and more. For example, it can cover your lost income, normal operating expenses that accrue even when your business is closed (e.g., employee salaries, taxes, and loans), and the expense of relocating your business to a temporary location (e.g., moving and rent costs).
- Business Interruption Insurance usually doesn't pay for utilities. This is mostly because it would be unnecessary if you can’t use your place of business. Chances are you're not going to turn on the lights in a burned down building (nor would you be able to). Some policies that have an Extra Expense rider can cover the difference in utility costs if they are significantly more at your temporary business location. Again, policies vary from provider to provider, so be sure to check your plan.
- Most Business Interruption policies have a time deductible. That usually means a covered event would have had to shut your business down for 72 hours before you can make a Business Interruption claim. In other words, even with this coverage, you need to make it through the first three days on your own before your benefits kick in.
- Contingent Business Insurance is a rider that covers supply interruptions. If an incident causes your business's primary supplier to shut down, your business may be put on hold, too. You may be forced to find a new supplier, which could take days or weeks. This rider can help you cover lost income in the meantime.
You can learn more about the policy here: "Business Interruption Insurance: How It Works."
Preparing for Business Interruptions
There are some things you can do to make your life a little easier even when your world is filled with calamity and chaos. Having Business Interruption Insurance is one such thing, but the following tips will go a long way toward preserving your sanity and making the claims process smoother.
- Keep your business income and expenses records stored in a secondary location. You'll need these documents so your provider can calculate payouts. You don't want to lose your only copies of these records in the same event that shut down your business, so keep a set stored off site and in the cloud.
- Develop a disaster plan before disaster strikes. This plan should detail how your business will operate in the aftermath of a catastrophe. Outline backup suppliers, emergency contacts (e.g., your insurance provider), and how clients and employees will be notified about the changes to the business.
- Call your insurance agent. When in doubt, turn to your agent. They can help you understand what your policy does and doesn't cover and explain any exclusions. If you want to add riders, they can help you with that, too. Just be sure you make these changes before you need the coverage.
To learn more about disaster planning, check out the post "What's Your Business Interruption Plan?"