What does business interruption insurance cover?
Business interruption coverage pays for a loss of income and additional expenses when your business is forced to close due to a covered cause of loss. Additional expenses can include employee salaries, mortgage or rent, loan payments, utilities, taxes, relocation costs, temporary operation expenses, and retraining. Coverage of each expense is only in effect during the business interruption restoration period unless otherwise stated within your policy.
If a commercial property claim causes your business to be temporarily unable to serve customers or sell products, business interruption coverage can cover the lost income during your downtime. For example, if a fire causes your auto dealership to temporarily close, business interruption coverage can help recoup lost income while the building is renovated.
Even if your business is temporarily closed, employees still need their salary. Business interruption coverage can cover payroll expenses if your business is shut down and isn’t bringing in any income to pay your employees. For example, if a storm causes damage to your restaurant’s kitchen and destroys operational equipment, business interruption coverage will pay your employee’s salaries while you cannot serve guests.
Mortgage or rent
A mortgage or rent payment doesn’t stop when your business is out of operation. If a covered event shuts down your business temporarily, a business interruption policy can cover mortgage or rent payments that are due during the closure period.
Missed loan payments can cause serious harm to a company’s future success. If loans are owed to financial institutions or other private funding sources, business interruption can help cover payments while operations are suspended within the covered restoration period.
Utility usage may be lower during times of temporary closure, but payment obligations will not go away. Business interruption coverage can cover utility bills due during a shutdown.
If an interim shutdown occurs when quarterly or annual taxes are due, they can be covered by business interruption coverage while your company isn’t generating income.
When there is an option to relocate operations to a new facility, business interruption might provide coverage for moving, setup, and rental costs.
An extra expense endorsement can be added to your business interruption policy. It can assist in getting your business up and running quicker than waiting for repairs to finish. If your company can set up new systems, software, or tools that makes transitioning to full capacity easier, then they might be covered.
Along with new tools often comes additional training requirements. If new tools or systems that help your business get back up and running require training, then business interruption coverage may cover those expenses.
What does business interruption coverage NOT cover?
Business interruption coverage will only cover expenses from operational-halting events that qualify under a commercial property insurance claim. Some scenarios where business interruption coverage will not cover expenses are interruptions not caused by a covered cause of loss, partial interruptions, seasonal slumps, and government policy changes.
Interruptions not caused by a covered cause of loss
If your business is forced to close due to an interruption not caused by a covered cause of loss, business interruption will not cover the expenses. There are endorsements that can be added to your policy that extend coverage options to additional situations. To find out more, speak with a licensed insurance agent who can assist with your specific requirements.
Commercial property damage
Business interruption coverage will not cover expenses to replace or repair damaged property. If your business property is damaged, you will need to submit a claim through your commercial property insurance to receive coverage.
Each business interruption policy will have a minimum length of time a closure must be active before a claim meets coverage criteria. If a business closes due to a short-term event or only partially scales back operations, it most likely won’t be able to receive coverage from a business interruption claim. For example, the minimum length of closure time is typically 72-hours before a claim can be accepted.
If seasonality plays a role in your company’s operations, business interruption coverage will not provide coverage during those seasonal slumps.
Government policy changes
Both federal and state legislative changes happen regularly. If one of those legal changes cause a downturn in your company’s ability to generate revenue, business interruption coverage will not cover that slowdown or closure.