Business Interruption Insurance: What Is It And Who Needs It?

Business interruption insurance will protect a business owner from any losses that result from a business having to close down because of an “insurance peril”, such as a fire of an “act of God”.  Business interruption insurance is a valuable insurance policy to have. Too many businesses forget that income can’t be produced without a business that is operational. Property insurance will cover the physical loss or damage to a location and the content of the buildings, however, it does not cover the loss of income while a location is being repaired. If your business location is temporarily unavailable and you might still be liable to pay for monthly bills, such as electricity, gas and rent

Business interruption insurance can cover the income your business would have produced during the period while your business location was deemed unusable.  The insurance company will usually base their decision of what your Business interruption insurance policy is worth by examining your company’s previous financial records

What does business interruption insurance cover?

Business interruption insurance covers:

• The amount of income your business would have earned over for the duration that the location is unsuitable to use. This is fixed by an insurance company on a case-by-case basis. As previously mentioned, the amount of compensation you are likely to receive depends on your company’s previous financial records.
• The costs and expenses incurred while your business is waiting for the location to become usable again. These costs will also be related to your company’s historical financial records.
• Losses due to sudden personal incapacity
• Losses due to a sudden and unforeseen natural disaster (e.g. flood damage, fire, storms)
• Losses due to local government action (e.g. road works)
• Losses due to theft and vandalism
• IT failure

Business interruption insurance will also cover your business if you are forced to move and operate from a new location. While Business interruption insurance is a very useful policy for a business to take out, it’s important to remember that this particular type of insurance policy is unlikely to provide your company with financial compensation for a long period of time. Most business interruption insurance policies will cover a period of a few weeks or a few months at the very most.

Small business owners need to remember that business interruption insurance are only for times when the company is unable to do business – not because they are having a difficult time because of the wider economic climate. You should also remember that if you put in a claim, it is likely that HM Customs and Excise will want to audit your business so you should be prepared to file lots of paperwork if you want to make a claim.

Business interruption insurance should be considered as a key policy to have if you are running your own business. You never know when your business might be in trouble and this policy will certainly elevate some of your stress.

If you have found this article on business interruption insurance then you might also be interested in reading our articles on employers liability insurance and key man insurance.