All You Need To Know About Business Interruption Insurance

9th February 2010

Imagine this; you wake up at a two in the morning with a

phone call from your local fire department. Your building where your business

is run from has burned down. You have insurance to cover the building but what

are you going to do about your business loss? You cannot operate from a

building that is burned down and you cannot afford to relocate while the

building is being rebuilt. This is a situation that happens to many business

owners every day. Do not fret however, with a simple plan added to your already

existing coverage you will have everything you need to deal this situation and

many others like it.

Business interruption insurance is a policy that covers an

owner of a business in case there is a major disaster at the business, (like

fire or flood), that causes the business to stop work for a short amount of

time. Most often this type of insurance will take care of the profits that you

could have earned before your temporary interruption, the expenses that might

keep running tab even though you are not doing business, and a temporary

relocation of the business.

Many business owners do not take into account the need for

this type of insurance because it is not a major policy. It is one that has to

be added to an already existing policy, like one to cover fire damage to

property. It should be an essential part of the package though because it will

cover you if you cannot operate out of your building because of the

damage.  In order to determine how much

coverage you will need you should do a work up of a business interruption

worksheet with an accountant. This will give you a roundabout number of how

much you need to cover your business for an extended amount of time in case of

a disaster. With these policies there is usually waiting period of two days

after the disaster before the coverage will kick in.

There are some things you should consider before you take

out a business interruption insurance policy. First, find out exactly what each

company’s policy offers. You should find out if the policy will cover things

like inventory and not just revenue. Compare the policy’s to find out what each

insurance company deems as an appropriate reason for you to be out of business;

remember it is the insurance company not you who gets to decide this so find

the one that works best for you. Also, you should be sure that the policy

covers many different aspects of disasters. For example, maybe your building

collapses due to unstable ground and your building did not meet the building

codes. This way no matter what the problem you business is covered.

Natural disasters like earthquakes and hurricanes happen all

the time and many buildings are damaged. Your building could also catch on fire

or have a major bust in a pipe that floods the whole business. In these

situations you will want to have an insurance that will cover your losses and

possible relocation if needed. Investing in business interruption insurance, as well as event cancellation insurance, is

a vital part of protecting your business.