What Happens When Business is Interrupted?

posted by Faith Dorn on Thursday, January 05th, 2017

Business Interruption

If a fire caused your business to be temporarily unusable, how would you respond?

Ideally, you may be able to move to a temporary location while your permanent place of business is being repaired. However, if you are unable to reopen quickly, customers may choose to look elsewhere for services.

The impact of a fire or another disaster could be devastating for your business. In our disaster preparation blog, we noted that “an estimated 25 percent of business do not reopen following a major disaster.”

Traditional property insurance does not cover a move to a new location or a loss of income if your business must temporarily close. That’s where business interruption insurance (also known as business income coverage) can help.

Business interruption insurance is designed to replace income your business would have earned if there had been no loss. Business income is generally defined as the net profit or loss before taxes, plus continuing normal operating expenses, including ordinary payroll.

Coverage is generally limited to the loss of income sustained until the property is restored or for a specific timeframe following the loss.

What is typically included in a business interruption insurance policy?

  • Compensation for lost income if your business has to vacate its premises as a result of disaster-related damage covered under your property insurance policy.
  • Coverage for the profits that would have been earned based on previous financial records, had the disaster not occurred.
  • Coverage for operating expenses, such as utilities, that must be paid even though business has temporarily ceased.
  • Coverage for expenses of operating in a temporary location while repairs to the permanent location are completed.

You may also want to consider extra expense insurance to cover the amount needed to avoid having to shut down your business while the permanent location is being repaired. This coverage reimburses for expenses that arise on top of normal business expenses, but are not covered by business interruption insurance. Examples might be for increased rent, employee overtime and moving costs.

Looking for other ways to help your business prepare for the unexpected? If so, you won’t want to miss our blogs on business continuity planning and disaster planning.

For more information on how insurance coverages can help protect your business, contact a member of the Professional Solutions Insurance Services team.