Life Happens: Business Interruption Coverage

When one thinks of “standard” insurance, it’s for damage or loss of property.  Furniture destroyed by a fire, stolen equipment, building damage from a violent storm.  You buy this insurance to help recoup the cost of rebuilding or replacing that property, right?

But life happens.  The unexpected arrives with unexpected consequences.  Such as, losses resulting from a business not being able to operate due to property damage.  That’s a different level of coverage know as business interruption, or business income, insurance.

When a business is shut down due to a damaging event, revenue slows down or ceases entirely.  But, at the same time, the financial obligations of the business continue as before, plus any additional expenses as a result of the disruption.  With business interruption coverage, many of these costs and losses can be reimbursed. According to the Insurance Information Institute, business interruption insurance will cover: revenue lost due to the closure; fixed expenses, such as rent and utility costs; and expenses of operating from a temporary location.

Determining a business interruption loss involves establishing what the business would have earned had the loss not occurred.  Insurance companies take into account past tax returns, profit and loss statements, projected sales and non-continuing expenses.  Business interruption coverage is not sold as a stand-alone policy. It can be obtained as part of the following types of policies:

  • Commercial property insurance—You can add an endorsement or rider to commercial property insurance that will extend the policy’s coverage to business interruption losses.
  • Business owners policy (BOP)—Intended for small businesses, this type of insurance package policy includes property, liability and business interruption coverage.
  • Commercial package policy (CPP)—CPPs are flexible policies that can be customized with a range of options, including business interruption coverage.

Time limits apply to business interruption coverage, so be sure to discuss limitations and exceptions with your insurer or insurance professional, and whether purchasing extended business income coverage is a good option for your business.  The professionals at The Reschini Group are experts in these options, and can help you determine the right business interruption coverage for your unique situation.

Copyright 2018 The Reschini Group

The Reschini Group provides these updates for information only, and does not provide legal advice. To make decisions regarding insurance matters, please consult directly with a licensed insurance professional or firm.