Understanding Business Interruption Coverage

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Understanding Business Interruption Coverage

Tuesday, January 27th, 2009 Subscribe To Our Feed

Who needs business interruption Insurance? Unfortunately quite a few businessman do not ponder on this question long enough. Business interruption Insurance is usually the last thing on a business owners mind when he comes up with a business plan and is generally the first thing he regrets not buying when his business is affected by some sort of interruption. There should always be an allocation for business interruption coverage or any form of business Insurance for that matter. It can even be included in a business property Insurance policy as an added clause but it is not a standard feature.

Some business owners are under the impression that they should only get business interruption Insurance if their business is operating in a disaster prone vicinity or is at a higher risk of being disrupted. But this type of Insurance may also cover losses sustained due to power outages and utility breakdowns.

If a disaster or any other form of disruption should arise and have a negative impact on your business, your business will cease too operate and generate revenue but instead incur fixed cost which might include rent and utilities. This is where business interruption Insurance will will save the day.

Business interruption Insurance coverage normally covers the opportunity costs during the period your business premise is rendered unusable. This sum is determined by your past financial records based on income garnered during a comparable period. When applying for coverage, businesses must document previous revenue with monthly income and expense records.

The Insurance also covers the costs and expenses incurred by your business even though the place is unusable. Just as before, these fixed costs are determined by analysis of historical financial statements.

Business owners should also seriously consider an extra expense coverage. This is the expense that may be incurred by keeping the location open. Extra expense coverage is offered by insurers in order to lower business interruption costs. For example, if your business can stay open by renting a piece of equipment, then the extra expense of the rental would be covered because the insurer would much rather pay the extra expense of the rental than the cost of a shut down.

Business interruption Insurance is likely the most valuable Insurance coverage your business can posses. It should not be neglected. It is a necessity which can offer some peace of mind just like business travel policy. You should never take it for granted that your property Insurance will cover everything. Have it checked and make sure it consists of the coverage your business requires. As the old saying goes, “Its better to be safe than sorry.”

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