Business Interruption Insurance
Embroker helps you get business interruption insurance to protect your company if it is forced to close down for a period of time as the result of a peril that made your business property unusable.
What Is Business Interruption Insurance?
Business interruption insurance helps replace the lost income and other expenses if a business is forced to temporarily shut down due to a covered peril that affects its commercial property. Covered perils typically include natural disasters such as fire, wind, or lightning, as well as theft and falling objects.
Business interruption insurance (also called business income coverage) is typically bundled together with general liability and property insurance into a Business Owners Policy. However, it can also be purchased under a more comprehensive, dedicated property insurance policy.
What’s the Difference Between Business Interruption and Extra Expenses Coverage?
Extra expenses coverage is often confused with business interruption insurance because it is often purchased along with business interruption insurance. However, the two policies cover different types of things.
The name basically gives a pretty good indication of what extra expenses insurance covers, taking care of some of the “extraordinary” expenses that would be associated with a situation in which business interruption insurance would be needed.
Deciding to move your business to another location and reopening while you wait for your regular location to be repaired is one of the most common examples in which an extra expenses policy would help.
An extra expense policy would cover the costs of moving to a temporary site, including renting new property and equipment, paying employees overtime to help realize the move, and hiring new employees to work at the temporary location.
If you run a type of business that can be relocated easily, extra expenses insurance can help you to continue making money at a temporary location while you are waiting for your permanent location to reopen.
What is Contingent Insurance?
Another type of business interruption and extra expenses insurance that exists is called contingent insurance. This type of insurance protects you in the case that one of your key partners is forced to close down operations.
For example, imagine you are running a chicken wings restaurant and the factory of the company that supplies all of your hot sauce burns down. Contingent business interruption and extra expenses insurance could help keep you afloat financially until your partner’s factory is back and running.
This type of policy provides you with financial support in the event that you lose a manufacturer, supplier, or even a client that your business’s bottom line relies upon heavily.
Contingent business interruption insurance would pay for lost profits and wages until their property is restored. Contingency extra expenses insurance would pay expenses that would enable you to continue your operations with another partner until your old one is ready to return to action.
When insurers write contingent policies, the property of your valued partner needs to be listed as a dependent property. Obviously, the dependent property listed in the policy needs to be owned by a third-party that is vital to the work of your company.
Who Is It For?
All businesses should invest in business interruption insurance, but some need it more than others.
This coverage is crucial for any company that relies on its physical locations and assets (equipment, machinery, or buildings) to conduct its operations. This includes businesses such as brick and mortar retail stores, restaurants, or cosmetic salons that need their physical locations to generate revenue.
Additionally, businesses based in locations that have been historically exposed to extreme weather patterns or natural perils should look to secure their peace of mind with the right business interruption coverage, regardless of industry.
Why Do You Need It?
The potential costs of having to shut down your operations for an extended period of time could be staggering. Paying employees who can’t work, lost profits, damaged reputation, and the cost to relocate or open temporary locations may seriously endanger even the most financially stable businesses.
Without comprehensive coverage in place, many businesses that rely on their physical property and assets would be forced to permanently close their doors in cases of fires, floods, or other covered perils.
What Does Business Interruption Insurance Cover?
Business interruption coverage is very closely tied to your commercial property insurance. This means the perils covered by your property insurance policy will also be covered by your business interruption policy.
Let’s take a look at what costs you can expect your business interruption policy to respond to:
Loss of Revenue
Business interruption insurance will reimburse your business for lost revenue during the temporary shutdown. Typically, the policy will reimburse companies for up to a year. This is a crucial aspect of the coverage, as it allows businesses to stay afloat during temporary setbacks that otherwise could force them to permanently close their doors.
Even though they are forced to shut down temporarily, most businesses will want to maintain their workforce during difficult times. Business interruption insurance will respond and cover your payroll while your business isn’t generating revenue. Typically, you can expect to be covered for up to a year.
Rent Or Lease Payments
Just because your business is temporarily closed, it doesn’t mean you can ignore your landlord and not pay them. Business interruption insurance will cover your rent or your lease while you’re working on reopening.
If you have business loans taken out before the shutdown, your ban will still expect you to pay them – even if you’re not making any money. This is where business interruption insurance can kick-in and ensure you don’t miss any payments.
Even if your business is temporarily not generating revenue, you’ll still have to meet your tax obligations. Business interruption insurance will ensure that you have the necessary funds to pay the taxes you owe.
The Cost To Relocate
If you’re forced to relocate your business due to property damage, business interruption insurance will respond and help cover the moving costs.
What’s Not Covered?
Business interruption insurance is designed to only provide your company with the means to recover from the financial implications of a temporary shutdown caused by property damage.
Losses covered by other policies won’t fall under the business interruption coverage. Your property insurance policy will cover the actual material damage to your commercial property – the interruption coverage will only pay for the financial losses related to the shutdown. Similarly, claims of damages and injuries to third parties that occur due to a covered peril will be addressed by your general liability policy.
It’s also important to note that business interruptions not caused by property damage, but are a result of other factors, won’t be covered.
Additionally, the interruption to your operations needs to be significant for the policy to respond to it. Being forced to shut down for a few hours due to a small, localized fire probably won’t be covered.
What Does Business Interruption Insurance Cost?
Like with any insurance product, several external and internal factors will affect your premium considerably:
The value of the commercial property that the business owns or leases will affect the premiums. The higher the value of the property, the higher the premium. But if a business with valuable property is forced to shut down, it will also receive a larger payout.
Certain industries have a higher risk of property damage, and business in them will have to pay more. For example, a restaurant will generally have to pay more for business interruption than a tech startup.
Because businesses are compensated for the revenue they lose during a temporary shutdown, companies with higher revenue will generally have to pay higher premiums.
Companies in areas that have historically unpredictable weather or exposure to perils will have to pay more for coverage.
Since business interruption coverage will typically cover payroll for up to a year, a business that pays out more in salary will also have to pay more for coverage.
Why Get It With Embroker?
We’ve made it easier than ever before to complete the purchase and get coverage. How easy? We don’t even need to see equity ownership or financial statements from you.
As a digital company, Embroker passes the savings for unnecessary administration on to you—for the most competitive price you’ll find anywhere.
Protect your business with the broadest coverage in the industry. You can tailor policies to your needs by choosing your own limit and deductible.
We provide you with expert support no matter your question: Reach us 24/7 via phone, email or live chat. You even get a personal account manager to look after you and your insurance needs.
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