How Business Interruption Insurance Protects Your Business
When you’re running a business, you’re never 100% prepared for all the challenges you can face. A fire can severely damage your business, a flood can ruin your inventory, or a key client has some major vandalism and can’t buy your goods. Business interruption insurance can help protect your business with financial support in these circumstances.
Business interruption insurance can mean the difference between closing temporarily or permanently. Can you really afford to take that kind of risk with your small business?
What is business interruption insurance?
Business interruption insurance provides financial support to a business that has to temporarily stop its operations due to a covered event, such as a fire, wind damage, flooding, and other covered losses. When a small business cannot reopen, business interruption insurance can offer several benefits:
Income Replacement: Replaces the income that the business would have earned if the fire had not occurred. This can include profits that would have been generated during the period of interruption.
Fixed Costs Coverage: The policy may cover fixed costs that continue even when you’re temporarily closed, like rent or mortgage payments, utilities, hydro, etc.
Temporary Relocation Expenses: If you need to relocate temporarily while repairs are being made, business interruption insurance covers the additional expenses associated with moving and operating from a new location.
Employee Wages: Keep paying employees while work is at a standstill and maintain your workforce.
Loan Repayments: If your business has outstanding loans, this coverage can help with the repayment of loans during the interruption period.
Taxes: If you can’t keep up with your commercial taxes during the interruption, this coverage will help you make payments and avoid late fees.
Carefully review and understand the terms and conditions of your business interruption insurance policy. Policies can vary, and coverage may depend on factors such as the cause of the interruption, the duration of the closure, and the specific terms outlined in the policy.
It's also worth noting that there are often waiting periods before the coverage kicks in. Be aware of any limitations or exclusions in your specific policy. It doesn’t hurt to have an emergency fund of your own in place.
How do I know if I need business interruption insurance?
If the following apply to you, business interruption insurance will probably come in handy:
If your business heavily relies on a physical location, such as a retail store, manufacturing facility, or office, an interruption in operations would significantly impact your revenue.
If your business is located in an area prone to certain risks, such as natural disasters, fires, or other unforeseen circumstances.
If a temporary closure would cause a significant financial strain, business interruption insurance can provide a safety net by covering ongoing expenses and helping to replace lost income.
If your business is not tied to a location, is rarely exposed to natural risks, and can operate flexibly in most circumstances, you likely don’t need business interruption insurance. For example, if you’re running a small tech business from your home office, you’ll probably only need to insure your equipment.
Does business interruption insurance cover a business I run from my home?
If you operate a business from your home, you should check with your insurance provider to understand the extent of coverage provided by your homeowners insurance and whether it includes any coverage for business interruptions. In many cases, homeowner’s insurance alone may not be sufficient to cover the business-related losses.
If your homeowner’s insurance does not provide adequate coverage for your home-based business, you may need to consider a separate business insurance policy or an endorsement to your existing homeowners policy that specifically addresses the needs of your business. This could include coverage for business property, liability, and business interruption.
Talk to a Western Financial Group business insurance expert to learn more about business interruption insurance, along with other key commercial insurance coverages to protect your business.