A man-made or a natural disaster can disrupt business operations. Businesses can be forced to cease operating because of a flood. And businesses in a high-crime area could get hit by a huge robbery. Some of the most common disasters that interrupt business include thefts, vandalism, hacking, hurricanes, tornadoes and fires. Business interruption insurance provides financial assistance when a business is crippled by some type of disaster.
Business interruption insurance is beneficial for several reasons. First, the insurance covers monetary losses caused by the disaster. This can help avoid the temporary or permanent closure of a business. The policy would cover operating expenses so the business can remain open. The policy might also pay for relocation to a new building or repairs to an existing one. Depending on the policy, there may also be assistance for building a completely new building. Some policies will also pay for training new employees and purchasing new equipment.
Note that business interruption insurance isn’t the same as property insurance. Property insurance covers damages to the building and nothing else. But interruption insurance also provides financial assistance to pay for additional damages and losses.
It’s possible to add business interruption coverage to an existing commercial property insurance policy. The business will be covered for loss of income that occurs during the period of rebuilding. Basically, coverage is for the day of the disaster up until the day the business is fully operational again.
Not all policies are the same. But one thing they all have in common is the insurer pays specifically for the actual losses or damages. The insurer will not pay for anything unrelated to the disaster. For example, if the bathroom was damaged before the disaster, then the policy will not pay to repair it. And policies also have exclusions. That means one policy might exclude paying for earthquake damages, while another might exclude paying for a partial closure.
Extended and contingent business interruption policies are available. An extended policy provides temporary coverage until the business is fully operational. With this type of policy, it’s important to note the correct dates for the restoration and reopening. A contingent policy pays for physical damages suffered by customers and suppliers. The business owner must use their own money to pay suppliers. But with a contingent policy, no damages are paid if a disaster occurs but doesn’t cause any business interruptions.