What is Business Interruption Insurance and Do You Need It?
Ensuring you have the right insurance as a business owner is vital. It can protect you from the unexpected and ensure that both you and your business as a whole, are safe.
Business interruption insurance is one of the most overlooked insurance policies available. Many business owners assume that other insurance will cover them if their operations are interrupted. Yet, this isn’t necessarily the case.
Buildings and contents policies cover the initial damage from events such as fire, break-ins and floods. They will not allow for the consequential financial loss that your business experiences.
For many without the correct insurance, long-term interruption often turns into business termination.
What Events Does Business Interruption Insurance Cover?
Whilst a business can be interrupted by many different factors. The two most common are fire and flood. You’ll never be able to predict when such a catastrophe will happen. Many often mistakenly expect other insurance policies to cover all their losses.
For example, a flood can happen. Stock can easily be replaced. Yet, a flooded building can take two months to dry out, at least. During this period where you cannot operate, you will lose revenue, loss of rental income and staff costs.
The events most commonly covered by business interruption insurance include:
- Fire
- Flooding
- Storm damage
- Vandalism
- Cyberattacks
- Equipment failure
- Failure of public utilities
Many policies also cover the impact of infectious diseases, but it is best to check the wording of your policy.
Why Do You Need Business Interruption Insurance?
Is your business reliant on carrying stock? Or do you need a specific premises to trade from? If so, business interruption insurance could be vital for the longevity of your business. When the worst happens, such a policy could help you get back on your feet and back to normal.
A business interruption policy is also important for ensuring customer loyalty. If you are confident that you could close, to later pick up where you left off, that is brilliant. Though, even the most loyal customers are likely to find new businesses to work with. You may be trading again within a few months, but the loss of customers and sales you could see in the long term could be insurmountable.
Business interruption insurance will reimburse you in two ways:
- For the income, you lose from destroyed stock. This will be calculated from pre-loss earnings, minus expenses you may have already paid on costs such as shipping.
- For extra expenses, you incur when you temporarily move your business.
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What is 'The Indemnity Period'?
The indemnity period is the amount of time of which a business owner can claim benefits from their business interruption policy. This is the most vital part of your policy because this will determine how long the total ‘loss of interruption’ period you have is.
It’s vital that when choosing this, you do not underestimate the length of time it could take for your business to be back running at full capacity.
When estimating the length of this period, think about these factors:
- Demolishing your building, and site clearance
- Building design, planning permission and tendering
- The construction period
- Replacing equipment, machinery and stock
- Restoring your supply chain and customer base
Try and estimate on a worst-case basis to set an adequate indemnity period. One year is the most common indemnity period, but your business may need longer to replace specialist equipment or you may simply want the peace of mind that a longer indemnity period provides.
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Things to Consider Further
When choosing the amount of business interruption coverage you need, think about:
- How long would it take for your business to get back to normal?
- If you rent office space, how protected is your building?
- Are your fire alarms and sprinkler system fully functional and up-to-date?
- Would you be able to sort out a comparable business space immediately, or would it take weeks to find a suitable space?
It’s also important to consider the indirect risks to your business. Indirect risks are the events affecting property other than the insured’s own. This includes damage to the premises of customers or suppliers, providers of public utilities, access issues due to damage to adjacent premises, or to roads, bridges or railways.
Ensuring that you have the correct business interruption insurance will give you the peace of mind that your business is covered, should the worst happen.
Here at [broker_name], we will work with you from day one to get your business back up and running as quickly as possible. From the moment you call us, you will have the support you need to choose the right insurance policy for you and your business.
