What is business interruption insurance?
Covers business for lost income and unusual expenses
Business interruption insurance covers a business for the loss of income or the additional expenses that can result from a forced shutdown period. A forced shutdown might be the result of a separately insured event, such as a fire or other covered disaster. If your business is forced to shut down while the property is repaired or rebuilt, it would still have ongoing expenses. For instance, loan payments, taxes, or key employee salaries would need to continue, along with certain possible additional expenses, such as furniture or equipment leasing, rent for temporary quarters, or the overtime pay required to return operations to normal.
Can protect business from losses triggered by events occurring elsewhere
Business interruption insurance can also protect a business from losses that result from a shutdown or direct loss on someone else's property, such as a supplier or key customer. Events at locations other than your own can still have a serious effect on your business.
If a key supplier's warehouse burns down (along with all of your ordered materials), your business could be seriously interrupted. Likewise, if one of your key customers suffers major property damage, purchasing may be suspended and so affect your volume of business.
Why would your business need this type of insurance?
Covers expenses not covered by fire or peril insurance
Business interruption insurance can provide payments for expenses that are not covered by your fire insurance. Your insurance policy for fire or other perils may provide money for repairing damages to or rebuilding your property as a result of a direct loss . What generally isn't covered by such a policy are the indirect losses that may result. Business interruption insurance covers the income lost during the shutdown, and pays for the additional, unusual expenses that can arise during the shutdown period as the company attempts to rebuild, repair, and resume full operations.
The following table presents an example of indirect losses that can arise from a specific direct loss:
Could mean the difference between business recovery or failure
Business interruption insurance coverage could mean the difference between a business reopening after a forced shutdown (of its own business or that of a key trading partner) or the inability of the business to recover from indirect losses. Even if your business has enough insurance against direct property losses, the extent and duration of indirect losses could still cause the total erosion of reserves and crippling income losses.
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