What is business interruption insurance?
Business interruption insurance protects against loss that arises when an enterprise is temporarily unable to open after a covered event, such as property damage. Business interruption insurance may also cover a civil authority, such as a government-mandated shut down, that temporarily requires a company to close. This kind of insurance covers the revenue normally earned when the business is operating, mortgage/rent/lease payments owed on the business space, loan payments the business is obligated to pay during closure, taxes, employee payroll and training costs, plus various other extra expenses.
Synonyms for business interruption insurance
Business income insurance is another term often used interchangeably with business interruption insurance. The differences between business income and business interruption policies are slight. The extent of financial support in a business income policy depends on how a business income plan has been underwritten, and certain exclusions may apply. Payment is made on this type of policy only when the loss of income arises from a covered event under a property/casualty policy.
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When do I need to be aware of business interruption insurance?
Adverse incidents that impact business operations can trigger a loss of revenue. This creates complications with paying normal expenses or accruing additional expenses as the company relocates to a temporary facility after a fire or other covered incident has occurred. Coverage under the policy lasts for the duration of the interruption period, although most policies mandate a waiting period of approximately 48 to 72 hours before coverage begins.
What is important to know about business interruption insurance?
Business interruption policies establish the covered period starting from the date of the peril or disaster through the date the damage has been repaired and the property returned to the condition it was in prior to the incident. Covered costs can include fixed costs, training costs, profits, employee wages, business taxes, and more. There are some other important items you should know about business interruption insurance:
- This kind of a policy does not cover items that are broken or damaged during an incident, as they are covered under property liability.
- The timeframe for which benefits are paid is called the period of restoration, and can vary from policy to policy; generally, the restoration period begins when the physical damage or loss occurs and ends when the property should—with reasonable speed—be repaired or replaced and the location made ready for the resumption of normal business operations.
- Extension endorsements can provide funds for up to 365 days.
- The policy limits determine the amount of money a company can recoup.
- Typical exclusions include broken items, flood or earthquake damage, undocumented income not listed in a company’s financial records, utilities, and communicable diseases, although numerous claims arising from COVID-19 are raising various challenges to the virus exclusion.