One of the most overlooked coverages in Commercial Insurance is Business Interruption Insurance. Business interruption insurance is a type of coverage which covers the loss of income that a business could suffer in the event of a loss or disaster. The income lost may be due to a disaster-related claim closing a business or due to the time it would take to rebuild a business and bring it back to whole. Business interruption can cover loss of income and the extra expense cost due to the destruction or damage of property caused by a covered peril.
The policy coverage states:
We will pay for the Actual loss of business income you sustain due to necessary suspension of your business operations during the period of restoration. The suspension may be caused by the direct physical loss, damage or destruction to property. The loss or damage must be caused by or result from a covered cause of loss. This coverage can be written with a limit of Actual Loss Sustained or a Monthly Limit of Indemnity.
In order to better understand these terms let’s break it down into smaller pieces.
What is Actual Loss Sustained? - The insurer is only obligated to pay if you sustained an interruption of your business leading to income loss up to the actual dollar amount of the “actual loss sustained”.
What is Business Income? - It usually includes the net income or net profit of a loss before income taxes that would have been earned or incurred by you to continue the normal operating expenses incurred including payroll.
What is a period of restoration? - It’s usually the length of time it would take to bring you back to whole to rebuild, repair or replace damaged property.
Extra Expense - It is the additional costs that can creep up due to unexpected expenses incurred that normally would not be part of the operating expenses and are caused by the loss.
Monthly Limit of Indemnity - The loss is limited by a fraction show in the Declarations page which will be multiplied by the limit of insurance for each 30 consecutive days following the beginning of the Period of Restoration. For example: $100,000 limit of insurance with a ¼ Option. This will provide $25,000 each 30 days until the limit is exhausted. Having an accurate limit is essential if you decide to take this coverage.
One thing to look out for is coverage due to business interruption created by civil authority. If the fire department or municipality were to shut down the main road that provides access to your business and you sustain a loss of income, it may or may not be covered. It is essential to make sure your policy includes coverage for interruption caused by civil authority.
There is no deductible, per se. But there is usually a 72 hour waiting period before this coverage kicks it. It is vital that you can cover expenses during this waiting period and have a contingency plan in place.
It is very important for you to weigh this coverage carefully as it can become a vital part of putting your business back together after a loss. Even standard coverages do not always take care of every possible disaster costs. It is essential, as a business owner, to determine what will keep your business afloat if your income was interrupted due to a fire or a storm.
Choosing the right limit of insurance and coverage for your business takes a candid conversation with your agent. This will save you heartache and worry down the road and get you back on track to making your business whole.
We recently helped an oil and gas contractor with business interruption insurance, along with an inland marine policy. You can read about it here.
Please feel free to contact our office if you have any questions or insurance needs requiring this type of coverage. At Alliance, We’ve got you covered!