Whether your business brings in thousands or millions in revenue every month, a temporary shut down could mean life or death for your business. This is especially true if you have employees relying on you to pay them.
Regardless of the size of your company, property damage and the financial loss that occurs as a result don’t play favorites. It can happen to any physical location anywhere in the world… at any time.
You never know when the forces of nature (or bad apples) will wreak havoc on your business.
So, if you’re curious about how you can protect it from the financial losses and added expenses of temporarily shutting your doors, you’re not alone.
In this article, I cover what business interruption insurance is, what types of situations it covers, what it doesn’t cover, how much it costs, and how to get started finding the perfect coverage policy for your business.
So, let’s dive in!
An Introduction to Business Interruption Insurance
Business interruption insurance helps cover lost revenue and any added expenses you face as a result of property damages covered in your policy. Some of these events include things like fire, natural disasters, theft, and severe storms.
Let’s look at a quick example.
A severe storm hits your area and damages the roof of your business causing you to shut down for several weeks while it’s being repaired. Without business interruption insurance, all you can do is wait it out.
But, if you have interruption coverage, you can recover the revenue lost as a result of being closed during the repair and continue paying your employees.
How Does Business Interruption Insurance Protect a Business?
Although lost revenue is the most obvious, it’s not the only way business interruption insurance protects your business through a temporary shut down. It also helps cover things like:
- Rent and mortgage payments while your business is closed
- Added expenses of temporary relocation (i.e. temporarily renting new office space)
- Paying your employees their normal wages during your shut down
- Taxes due during the time you’re unable to open
- Loan payments and other bills you may owe
Without interruption insurance, you’re responsible for taking care of these situations on your own. Regardless if you’re able to run your business as normal, bills are still due and employees still need to be paid.
Situations like this can be extremely tough, especially for small businesses.
Who Needs Business Interruption Insurance?
If you own or rent a physical business location (i.e. a storefront or office space), you should carefully consider purchasing a business interruption insurance policy.
Going further, if you use any type of physical property you rent or own to run your business (i.e. a factory, warehouse, or distribution center), business interruption coverage is a good idea.
Why? Because most business owners prefer to not leave situations like this to chance. You never know when disaster will strike or someone will break in and vandalize your property causing you to temporarily close your doors.
So, if physical property damage covered under your policy results in a temporary shut down (like a fire or severe storm), you and your employees are financially covered until you’re able to return to business as normal.
What Does Business Interruption Insurance Cover?
Business interruption insurance helps recover financial losses, pay your employees, and cover added expenses in certain situations resulting in property damage that interrupts business operations.
This type of insurance typically doesn’t cover short-term interruptions. But instead focuses on property damage that causes long-term financial interruption (i.e. closing your business for several weeks or months).
It may also help reimburse the cost of immediate actions you take to prevent further property damage or losses (i.e. immediately replacing windows to prevent additional weather damage and theft).
Events typically covered under business interruption insurance include:
- Severe weather (with the exception of floods)
- Fire, smoke damage, and water damage
- Vandalism or theft resulting in significant damage
- Bursting pipes
- Structural repairs
- Long-term loss of utilities
- Any other property damage claim you file
What Doesn’t Business Interruption Insurance Cover?
It’s important to point out that business interruption insurance doesn’t help pay for any losses or property damage that occurs since that’s covered under your business property insurance policy.
Business interruption insurance only covers the financial losses and added expenses that occur as a result of temporarily closing your business. It also doesn’t cover floods or earthquakes as these are covered under a separate policy.
Note: Coronavirus-related business closures and temporary shutdowns aren’t typically covered under business interruption insurance and many insurers are denying coverage for claims related to COVID-19.
Furthermore, business interruption insurance doesn’t cover things like:
- Un-ordinary operating expenses (i.e. hiring temporary workers or paying overtime)
- Losses caused by other businesses temporarily shutting down (i.e. your manufacturer)
- Short-term interruptions (i.e. power outages)
- Income not related to your business
- Coronavirus-related shutdowns and business closures
- Any shutdowns or losses not related to property damage
- Losses or damage caused to vehicles (see business vehicle insurance)
How Much Does Business Interruption Insurance Cost?
The average cost of business interruption insurance is between $40 and $130 per month or $500 – $1,500 per year. However, the size, value, industry, and location of your business play a role in calculating your monthly premium.
Small businesses can expect to pay on the lower end whereas high-volume commercial businesses typically pay more for coverage as their losses and claims are more expensive to cover.
How Is it Calculated?
Every business is unique as is every business interruption insurance policy. As you can imagine, higher-risk industries bringing in millions of dollars in revenue should expect to pay more than small locally-owned shops.
So, your monthly premium depends on factors like:
- Annual revenue
- Overall property value
- Restoration period
- Your industry
- Coverage limits
- Location
- Risk level
How Do I Get Business Interruption Insurance?
There are countless business interruption insurance providers out there. Choosing the best coverage plan and provider for your business is oftentimes the hardest part of getting coverage.
So, I recommend starting your search with a side-by-side comparison of the top policies and insurers for your industry, location, and business size.
