Business Interruption Insurance
Business Interruption insurance is basically talking about the money or income you may lose when your business is, for some reason, interrupted and unable to operate. This may happen due to a variety of causes such as a natural disaster, or something simple like a power outage.
There is much more to protecting your business than simply insuring your physical assets. As you know, your business expects an ongoing income to stay afloat. Without this ongoing income, things can get tricky. That’s what Business Interruption insurance is for.
Why is it important?
The owners, shareholders, and/or those who have provided finance into your business expect an ongoing income that will cover the financing costs, the costs of operating the business and an acceptable level of profit. The profit and ongoing expenses including payroll, management and other staff bonuses and financing costs all should be insured. Without it your business may simply go down the plug hole in the event of a loss.
Business Interruption insurance is designed to make up for the amount of money lost due to the interruption to your business.
The types of Business Interruption insurance available
Insurance policies use different terminology and take different approaches to the way they insure for business interruption. It’s important to ensure you match your needs to the insurance available and get the most appropriate. It is an important a decision for you and the ongoing success of your business so it is best to carefully consider your options rather than buying the cheapest or quickest available.
If something goes wrong and you need to make a claim, you do not want to find that you are trying to fit a round peg (your claim) in a square hole (your cover). It could be disastrous if it does not fit as you expect and need.
Under many policies there is more than one way to insure against financial losses as a result of business interruption. These are:
OPTION 1 – TRADITIONAL COVER
This type of cover is called different things by different insurers. This is most often referred to as Consequential Loss of Profits, Gross Profit, Annual Gross Profit, Annual Income, or Gross Income.
OPTION 2 – WEEKLY INCOME
This type of cover has been developed as a simplified cover for smaller businesses, particularly those just starting out. While this form of cover has its place it may not provide full cover to all businesses. If in doubt, it’s best to discuss it with your insurance broker or adviser who can explain and all the various covers available.
OPTION 3 – ADDITIONAL INCREASE IN COST OF WORKING
This cover has been developed for a business which has determined that they will not lose any income following any type of insured loss, but will need to increase costs to continue to operate in the case of an interruption. This may include relocation costs, overtime to staff, redirecting phones, internet, etc and advertising to customers of the change of address. While there is definitely a place for this cover it often is found lacking when the crunch comes. It is not recommended for use by manufacturers, retailers or in place of loss of rent cover.
Get the right advice
Besides these basic types of cover, each has different options about the additional benefits that they provide.
If you are in any doubt on which of the above options is best for your business, please discuss it with your insurance broker or adviser who can explain the differences for all the various covers available.