What is Business Interruption Insurance ?

Business Interruption Insurance
Running a business or company has always been associated with many risks due to which the owners have to shut down their business. The reasons of these risks can be varied which includes natural calamities such as earthquake, floods or storms or loss of revenue due to man-made calamities such as vandalism, terrorist acts etc. For the protection of your business and life of people, it has become necessary for business persons to invest in business interruption insurance. The investment in business interruption insurance can also protect businesses from various incidents such as lack of finances, loss of business share or incompetency in running the business.



Business Interruption Insurance

Also known as business income insurance, business interruption insurance can be broadly defined as the type of insurance which covers the loss of income of any business due to the disaster which can be man-made or natural one. The loss of income which is covered may be due to rebuilding or closing down of the business facility.


Buying Business Interruption Insurance

One of the things which you should remember when making a decision about purchase of business interruption insurance, is that this type of insurance is always offered or included in the business insurance package which is a combination of different policies under one premium. It is also offered as an extra option under building & contents insurance policies.


Do I Need To Buy Business Interruption Insurance?

There are many businesspersons who ask this question to insurance company representatives or agents. This question is natural as the customer likes to purchase policies to comply with the law or to protect himself and his property. At the same time, he would like to keep his premium low and cut out unnecessary expenses. As per experts, the business interruption insurance is as vital as fire insurance for the survival of any business. It is a fact that any disaster, whether it is natural or man-made, does not offer advanced information so that the businessman can make any provision for the safety of his or her business. The business interruption insurance offers a financial hand to revive your business after any disaster.


Common Limitations Of Business Interruption Insurance - 100 Words

Like other insurance policies, there are some limitations of business interruption policies. There are many standard business policies which cover only damage or loss of tangible items which are required for running your business such as inventory, equipment, your store, office or warehouse. But they do not cover lost profits if your business does not operate due to any reason. When you need to add this option to your insurance policy, you need to document your current net income and submit it to your insurance company in a systematic way. If your business and profits are increasing at faster rates, you need to submit the concerned documents as a proof of your growing income and project the future growth in income of your company. It helps your claims in a substantial manner. When filling up the documentation for business interruption insurance, you need to make a final decision on the types of interruptions you would like to have coverage. Take an example, most people exclude loss of utilities from standard insurance policy when signing the agreement but, recently, a number of businesses suffered from business loss after hurricane Sandy hit the US - they lost production time due to downed electric lines.


Calculation Of Coverage – How Much Coverage Do I Need?

After understanding the benefit of business interruption insurance, one of the most common questions  is how much coverage they require for their business. This is an important query as the coverage should not be so small that the customers can lose lots of money, but he is also very worried about the cost of premium. As per experts, the best choice for coverage differs from business to business as per their requirements and types. Take an example - the coverage of a small manufacturer may differ from a retail store. When choosing coverage, you can discuss the matter with an insurance agent. But, you can also think and make your own list by considering the risks and threats your business may face due to its location, nature of products or services, depending on the factor for ensuring the success of the business. You need to take all contingencies in consideration before calculating the coverage of your business. You also need to calculate the time; labor and efforts if you need to restart your business in the event of any disaster; and incorporate that in your insurance coverage.


Additional Coverage

Even if you purchase standard business interruption coverage, it will not be able to cover all types of disasters which can plague a business. Take an example, when you rent a new warehouse whose rent costs more after your old warehouse is destroyed, the interruption insurance will only cover the old rate. For covering these issues, you require the extra expense
rider on the business interruption insurance. When related businesses suffer any reverse fortune, such as the explosion in your website host server’s place, it can take your website down. It will hurt your business even if your business places are not damaged. For such times, “Contingent business” insurance will be able to cover the lost profits.


Getting Reimbursed

Getting reimbursed when making claims after any disaster, you need to remember and take many precautions. Generally, the insurers exclude some days after any disaster when calculating the claim, so you need to make some cash provisions for covering the costs. After that, you need to furnish extensive documentation for the lost profits. In such situation, you need to save your documents electronically offshore or have store printed copies at another location.


Explaining Insurance Terms

Most of the commercial property insurance policies which offer coverage for loss of business income do so with the addition of an endorsement to the property policy of the insured person. This endorsement is done to protect an insured person from business income loss due to any natural or man-made disaster which is covered by the policy. Most often, these business clauses have their own terminology, which is not understood by any business person. Here, we will help you to understand some of these business terms.


Actual Loss Sustained

The coverage of business income covers the actual loss which has been sustained by the insured due to damage or physical loss which has been sustained by insured’s property which is covered by the policy. But, the insured person should remember that he can only claim when he sustains the business interruption followed by the actual loss of business income. The payment will be limited to the dollar amount of loss which is actually sustained, but cannot exceed the limit of the policy.


Business Income

Normally, when any business sustains reduction in net income due to partial or complete suspension of operation, due to physical loss at insured business premises, the compensation is calculated by including the sums incurred or earned by the insured business such as payroll and other items.


Period Of Restoration

As per business interruption insurance, the insurers are liable for the income loss only during the restoration period, which can be broadly defined as the time period which is required for repair, replace or rebuild the destroyed or damaged property. As long as the damage occurs in policy period, the agreement is binding for both parties who signed the agreement.


Extra Expense

The extra expenses can be broadly defined as the essential expenses which are incurred by the insured person during the restoration period, which were incurred precisely due to physical loss to the property which has been covered by insurance coverage. The steps which are taken and the incurred expense to prevent this loss are included and covered as income loss.


Service Interruption

This term offers insurance coverage in the event of direct physical damage to services or utility such as telephone, gas, steam, and sewer and so on. But, the owners of such services or utilities cannot be named as an insured party under this policy. The policy has some limitations such as exclusions like distribution lines, overhead transmission lines and earthquakes.


Contingent Business Interruption

Also, known as CBI, this insurance coverage is designed for covering the insured business person’s income which results from the destruction of the property which is owned by other people like the direct supplier of products and services or the customer of the business. Usually, this is one of the additional riders on the insurance policy.


Leaders Property

Leader’s property can be broadly defined as the endorsement which offers insurance coverage to the insured business which insures the direct destruction, damage or physical loss which has been insured by an insurance policy to the property which is not operated or owned by the insured business. But, it is located in stated distance and attracts the business to the insured business. Take an example, this policy includes the nearby mall or casino which attracts the business and the insured business is profited by it.


The Coverage Time Period

The most common coverage time period is 30 or 14 consecutive days. The insurance provider can also impose a set waiting time period which is required to be reached such as 1 day, 2 days or 3 days.


There are many risks associated with running any business. The owners of any business are bound to sustain income loss or reduction in income due to many disasters, whether they are sustained in related businesses, man-made or natural one. A wise businessman plans all sorts of contingency plans to protect his business income in the event of any such disaster. One such contingency plan is to plan and get business interruption insurance for business.

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