Are You Covered if Your Business is Interrupted?
You’ve worked hard to build your business, and your insurance program should work hard to protect you from financial ruin. Even the smallest of claims can set your business back for weeks or months.
What if you had a fire or other devastating loss to your building? You may feel confident that your existing insurance program will rebuild your building and replace your damaged contents, inventory, materials, etc.
But, imagine you are a retail shop and a fire destroys your business during the holiday season? Again, you may feel confident your insurance will cover you to rebuild the building and replace your contents, but how quickly can you be back up and running?
While the insurance company will pay for the damage to the building and contents, how are you going to replace the income you anticipated earning during that busy season; or worse yet, how are you going to replace your income for an extended period of time?
Many people give careful consideration when insuring their building or business property but don’t give as much thought to the loss of business income following a devastating loss. How are you going to continue to pay your key employees, pay the mortgage, and pay other continuing expenses?
This is why business interruption coverage, also referred to as business income coverage, should be a critical part of all business insurance programs.
Business income coverage will compensate the business for the actual loss of income suffered during the interruption of business. This coverage will begin with the date of the damage to the business and continue until the property is rebuilt or repaired. Some commercial policies will cover your loss of income for a specified number of months/years, and others will cover loss of income based on a fixed dollar amount.
You may even suffer a loss of income when there is no damage to your business. For example, if you are a retail shop in a shopping mall and part of the shopping mall suffers a fire or covered claim and access is denied to the entire shopping mall until the damage is repaired/replaced, you too would lose income. You will want to make sure your policy covers you for this as well.
This is commonly referred to as “contingent business interruption.” This coverage would also be important for businesses that rely on certain suppliers. If they are unable to get their product from a supplier because the supplier suffered a fire or loss, then “contingent business interruption” could pay for the resulting loss of income.
Many policies will extend business income coverage even after the business is open until they resume their normal level of income stream. This is referred to as an extended period of indemnity and can be extended for a specified number of days: 90, 120, 240, 360, or 730 days.
In addition to replacing your lost income, many policies include “extra expense coverage,” which would pay additional business expenses to keep your business running. This would include temporary relocation costs and expenses, overtime pay to compensate employees that will work longer hours due to the relocation, and any other expenses to keep you in “business” until your business is fully restored.
It is important to know that business income coverage is only triggered when there is a “covered claim” to your business.
For example, most business-owner policies contain exclusions such as flood, earthquake, cyberattack, and many others. If your business was damaged by something that is excluded, there would be no coverage under your business-owner’s policy for damage to the building or business property, and therefore business income coverage would not be triggered.
Know your coverage. Some policies will have a specified waiting period before loss of business income coverage will be paid.
Securing adequate coverage to repair/replace your building and business property is essential, and so is insuring your income stream.
Discuss business interruption, extra expense, extended period of indemnity, and contingent business interruption with your agent and properly protect the business you have worked so hard to build.
Wendy Deibler is the founder and CEO of Deibler Insurance Associates, Inc. Deibler began her independent agency in Boiling Springs, Pa., in 1997, and is now located in Carlisle, Pa. Building a long-lasting relationship with our clients is our No. 1 priority. www.deibler-insurance.com