What Is Business Interruption Insurance

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What Is Business Interruption Insurance

What Is Business Interruption Insurance?

What Is Business Interruption Insurance. Business interruption insurance is a type of insurance package that covers income following a disaster. This income loss may be a result of physical damage and the resulting rebuilding process, or it may be due to a disaster related closing of the business facility.

This type of insurance differs from property insurance in that the latter only covers physical damage to the business facility, while business interruption insurance also covers the profits that would have been gained. For a business owner, having this policy provision allows you to put the business into the same financial position it would have been had the disaster never occurred.

What is business interruption insurance? There are many different events that can cause a business to temporarily shut down its operations. The frequency of natural disasters in our time has led to growing concern over the preparedness of many businesses to manage operations when faced with disruptions.

What is business interruption insurance? Also known as business income insurance, is a type of commercial policy that covers the loss of income that a business suffers after a disaster.

How Can I Get Business Income Insurance?

Business income insurance is not sold by itself. A commercial property insurance policy offers additional coverage for business income loss by including an endorsement to policy.

This endorsement is designed to protect the insured for losses of business income it sustains as a result of direct loss, damage, or destruction to insured property by a covered peril.

This endorsement means your insurer will pay for actual loss of business income your business sustains following the suspension of operations during a period of restoration.

Causes Of Business Interruption

Remember bad weather is just one of the many causes of disruption and the extent of the disruption often varies. Let's look over a few other causes of business interruption:

  • Fire
  • Transport network disruption
  • IT outage
  • Industrial dispute
  • Civil unrest
  • Cyber attacks
  • Insolvency

Business Interruption Insurance Policies

If an occurrence is not covered by your commercial property policy, like a flood, keeps your business from operating, your business income coverage will not kick in. A good example is flood damage - almost all standard commercial property policies exclude flood damage. Unless you have purchased commercial flood insurance, your business interruption policy won't pay your interim expenses and you'll be out of pocket for water damages from the flooding.

What Does Business Income Insurance Cover?

What is business interruption insurance? Following are descriptions of some of the coverages and terms in a business income endorsement:

  • Actual Loss Sustained: Business interruption insurance may cover the actual loss sustained by the insured following direct physical damage or loss to property by a peril or other event not excluded from the policy. Your insurer is obligated to pay if your business sustained an interruption leading to business income loss.
  • Business Income: This includes the net income (net profit or loss before income tax) that would have been gained or incurred by the insurer, and the continuing operating expenses including payroll.
  • Period Restoration: Your insurer is only liable for the loss of business income during the period of restoration - otherwise defined as the length of time needed to repair, rebuild, or replace damaged property. This period starts when the physical damage occurs and ends when property should (with reasonable speed) have been restored.

What is business interruption insurance? The expiration of a business interruption policy does not mean an end to the period of restoration. As long as the physical loss occurred during the policy period, the policy will still be valid for the duration of the restoration period. Apart from offering coverage for business income, the property policy endorsement can also provide coverage for events defined as "additional coverage" such as the following:

  • Extra Expense: This includes the added costs incurred by the insured during the restoration period that would not have occurred if there had been no physical loss or damage to property. Keep in mind that business owners have an obligation to minimize the extent of any loss or damage, and any expenses incurred in their efforts to reduce the loss are covered as part of business income loss. Typically, the insurer limits these expenses to the point that such expenses minimize the business income claim; however the insurer is not expected to pay any portion of the expense that is higher than the claim itself.

Business interruption insurance policies can also include "extensions of coverage", a section that guarantees the insured coverage against losses stemming from a variety of causes including:

  • Service Interruption: This provides coverage against physical loss, damage, or other forms of destruction to gas, water, sewer, telephone, or electrical service. The operators of these facilities are not named under the policy, and there are limitations to this policy. For instance, exclusions of certain perils like tsunamis or earthquakes, or limitations regarding distances are common.
  • Contingent Business Interruption: This is meant to cover the insured against losses resulting from damage or destruction of property owned by third parties including suppliers and "receivers" of goods or services provided by the insured. CBI coverage targets the relationship between the insured and their suppliers, and also the customers or receivers of their goods or services.
  • Interruption By Military Or Civil Authority: The insured is offered coverage for loss sustained for the time during which access to the business premises is prohibited under military or civil order, and in most cases the time period in this type of endorsement is 14-30 consecutive days.

Does My Business Need Interruption Insurance?

What is business interruption insurance? As illustrated by the various coverage options discussed, there are dozens of considerations that your business must weigh in order to sustain consistent revenue when faced with these challenges. Business interruption insurance will help get you through disruptions that would otherwise cripple your business.

Request a free Business Interruption Insurance quote in California, Delaware, Kentucky, New Jersey, New York, Pennsylvania and Texas. Also see Commercial General Liability Insurance, Commercial Insurance Premium Financing, Directors and Officers Liability, Do I Need Insurance As A Subcontractor?, Does My Business Need Commercial Flood Insurance?, Fire Legal Liability Insurance, General Liability Insurance Coverage, General Liability Insurance FAQ, How Does General Liability Insurance Work?, How Much Does General Liability Insurance Cost?, How Much Is Insurance For Contractors?, How Will Artificial Intelligence Change Commercial Insurance?, Liability Insurance, Premises Liability, Understanding Primary And Non-Contributory Liability Insurance, What Is A Waiver Of Subrogation?, What Is An Additional Insured Endorsement?, What Is Business Interruption Insurance?, What Is Excess And Surplus Lines Insurance?, What Is General Liability Insurance?


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What Is Business Interruption Insurance
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