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Try as we might, we can’t prepare for every eventuality in our business.
One way or another, there’s going to be an unavoidable situation that will require you to stop operating. Without business interruption insurance, the damage can become pretty devastating.
This article will discuss everything you need to know to protect your business from unfortunate events by using this insurance policy.
What is Business Interruption Insurance?
When for some reason, you have to stop the operation of your business, you’re doing more than just not working for a day. Even while operations stop, there are still some expenses that continue.
For example, you might need to pay the rent of your business location, even if you haven’t made anything to cover that. Similarly, you will also have to pay regular employees their wages and other continuing expenses.
These expenses can eat into your savings if you pay for them out of pocket. And the longer the interruption goes on, the bigger your costs will be.
Business interruption insurance allows you to stop working for a while without losing more money because of out-of-pocket expenses.
This type of insurance will usually have a business interruption period where your expenses are covered. If the reason for the interruption of your business falls under the covered perils of your policy, you can be covered for anywhere from 30 days to one year.
These policies will cover you from when your policy was activated until your business is restored or your policy limit is reached.
The amount you can receive from this policy will usually depend on your past financial records. Business interruption insurance is not sold as a separate policy but acts as a rider to other related insurance policies, such as property or commercial insurance.
Who Needs Business Interruption Insurance?
If your business requires your daily operations to earn revenue to pay for your expenses, then you can quickly go in the red from any sort of business interruption.
Moreover, small businesses and startups often don’t have enough emergency funds to cover business interruptions, so these companies should also get business interruption insurance.
Generally, the following businesses critically need this policy:
- Manufacturers
- Food and service businesses
- Retail stores and product distributors
- Professional firms such as consultants and service providers
Business Interruption Insurance Coverage
You need to know exactly what your insurance policy covers to know the full extent of protection you have. Business interruption insurance coverage include:
- Profits. You will be reimbursed for some or all of the profits that you may have earned had your business not been interrupted. The amount will be based on past financial data.
- Fixed costs. This includes incurred losses during your business operations.
- Temporary locations. Payment of the temporary site in case you need to transfer.
- Commissions and training. Business interruptions can create additional training and equipment, which is also covered.
- Employee wages. This includes payment for your employees for the duration of your business closure.
- Taxes. The amount of receivable for this aspect depends on previous financial data.
- Loan payments. Any outstanding loan payments that you have to make for the duration of your business closure.
- Civil mandates. Lost business due to government proclamations (for example, curfews) will also be covered.
The situations covered by business interruption insurance will depend on the underlying insurance policy to which it is attached since business interruption insurance can only exist as an add-on.
How Much Business Interruption Insurance Do You Need?
Although this type of insurance is quite handy, the amount that you actually need to get still depends on your specific business.
Generally, you can estimate the right coverage by going through your financial sheets. You can look at your historical and projected gross earnings, operations costs and make your judgment based on those figures.
Generally, you can ask the following questions to help you figure things out:
- What kind of disaster is your business most at risk of?
- If the worst happens, how long will your business be down?
- What measures have you made to minimize your worst-case scenario from happening?
Business Interruption Insurance Cost
The cost of monthly premiums varies from business to business because these types of insurance policies are tailor-fitted for specific situations. Generally, though, the cost of your policy depends on the following factors:
- Business size
- Industry
- Location
- Underlying coverage
- Policy limit
Nevertheless, the best way to figure out how much you’re going to pay for insurance is by talking to a qualified agent, such as here at Magnum Insurance.
Getting Business Interruption Insurance with Magnum Insurance
Business interruption insurance is critical if you don’t want minor accidents to turn into significant problems. With this kind of financial protection backing you, you don’t have to worry if life decides to interrupt your business operations.
At Magnum Insurance, we can assure you of uninterruptible, quality service. Call us today to get the best business interruption insurance policy for your business!
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