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Why Your Company Needs Business Interruption Insurance

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For most companies, business interruption insurance may be as important for survival as fire coverage. It is difficult to find a business that did not obtain insurance for windstorm and fire damage. However, too many business owners do not consider how they would continue functioning if a windstorm or fire actually did damage their property. This is especially true with small business owners. Business interruption insurance is not sold independently. It is an additional type of coverage for a property insurance policy. In some cases, it may be included in a package policy for business owners.

Businesses that must completely cease operations while the premises are repaired often lose money to their competitors. Quickly resuming business after a disaster is essential for survival. If a company must vacate the premises because of damages from a disaster, business interruption coverage extends protection for lost income. It also provides coverage for the profits that would have been earned if the business had not sustained damage. The profit reimbursement is based on an average of financial records, so it is imperative to keep them up-to-date and accurate. These beneficial policies also cover operating expenses that may not be halted due to the damage. For example, electricity would still be needed for most businesses, so the insurer would provide money for electricity bills.

It is important to make sure the policy limits are generous enough to cover the business for more than a week. Keep in mind that it may take much longer than most people anticipate to resume operations. If a major disaster happens, it may take several weeks to resume operations. The waiting period for business interruption coverage to start is usually about 48 hours. Policy pricing is based on the risks a particular business faces. Businesses in some locations are more likely to sustain certain types of damage than others. In addition to this, the nature of the business plays a major part in determining policy pricing. For example, a restaurant would be more expensive to insure than a travel agency. This is due to the restaurant's heated appliances and grease creating a higher risk for fires. While a restaurant would have a hard time operating out of an alternate location, the travel agency would easily be able to do this. These are just examples of some of the issues determining premium amounts. To get a clearer price estimate for a specific business, discuss individual business details with an agent.

Another type of protection to consider with business interruption coverage is extra expense insurance. This type of addition reimburses companies for slightly more than the amount of regular operating expenses. By receiving extra money, the business is less likely to have to shut down for restoration. If any extra expenses decrease business interruption costs, they will usually be covered. Extra expense coverage alone may be enough to compensate some businesses. To learn the risks and options, discuss them with an agent. 

Click here to return to Amity Insurance E-Newsletter February 16, 2012.