Every business should have some kind of insurance, including property insurance, workers’ compensation insurance and liability insurance. One type of insurance that many small business owners oftentimes neglect is business interruption insurance. However, this type of insurance benefits most businesses. It is important to understand what business interruption insurance is, what it covers and what it does not cover.
What is business interruption insurance?
As the name suggests, business interruption insurance covers interruptions that a business suffers that cause the business to lose income, like the need to relocate or close operations.
What does business interruption insurance cover?
According to the Insurance Information Institute, business interruption insurance covers:
- Lost revenue due to closures
- Rent, utilities and other fixed costs
- Temporary relocation costs
- Employee wages
- Taxes
While business interruption insurance does offer coverage for several things, it will not cover everything. Evaluating the needs of your business and how business interruption insurance could protect them is important
What are the limitations to business interruption insurance?
Business interruption insurance does not cover every situation that stalls your business or every type of loss that results from a business interruption.
In general, business interruption insurance exists as part of your commercial property insurance or your business owners’ policy. Because of this, it will cover any type of event already covered under your primary insurance policy.
For example, if your business interruption insurance is a part of your commercial property insurance, it will cover the losses that result from a fire, flood (if floods are covered under your real estate insurance policy) or storm.
Business interruption insurance will not cover interruptions caused by events unlisted on your policy, including mandated shutdowns.
Do you need business interruption insurance?
As a business owner, having business interruption insurance can help better protect your business. The only businesses that may not benefit from obtaining this type of insurance include:
- Businesses that don’t use any type of physical facility
- Businesses that don’t use any tools or technology
- Businesses that run almost no risk of having normal business operations disrupted by the type of occurrence that would trigger a property insurance claim
Since there are almost no businesses that would avoid significant losses from a fire or similar event, almost every business should seriously consider obtaining business interruption insurance.
Not all policies are created equal
Be sure to obtain quotes and policies from a few different vendors, to compare prices and coverage options. Also, read the fine print, as not all policies have the same type of coverage and deductibles. It is always best to work with a legal professional you trust to look over a potential policy and provide sound legal counsel as to your rights and options.