Understanding Business Interruption Insurance
May 31, 2019
The world is full of uncertainties and some of these uncertainties can be detrimental for most businesses.
Knowing this, it is vital for these businesses to consider taking out insurance cover to protect them against the effects of these uncertainties.
The insurance world is vast and insurance companies offer a large array of options to suit all types of businesses.
One type of policy that is commonly misunderstood is the business interruption or loss of income policy.
This article will explain what this cover entails and some of the essential things you need to know about it.
What Is Business Interruption Insurance?
This type of cover replaces the business income that has been lost as a result of an event that affects the regular activities of a company.
This could be caused by an event such as a natural disaster or fire.
In most cases, it is not sold as a separate policy and comes as a part of a comprehensive or property policy depending on the company you are buying it from.
It is regarded as an extra layer of protection on top of regular policies such as fire insurance.
However, in addition, a business interruption policy will compensate you for the income you would’ve generated had you been operating normally.
This policy typically covers three things which include:
- Profits that you would have earned if the incident had not happened
- The regular operating expenses even if the business is closed temporarily such as the staff wages and allowances
- The cost of shifting the business to a temporary location such as the moving and rental costs.
The insurance underwriter will determine these amounts based on your income and expenses records.
This underlines why it is essential to store these records safely as they come in handy under such circumstances.
Following is a list of what is covered:
- Rent and lease payments
- Relocation costs
- Employee wages
- Loan payments
- Losses caused by damages that prevent access to a building.
What Doesn’t This Policy Cover?
Note that this insurance cover doesn’t cater for everything, so let’s take a look now at some of the exclusions:
- Utilities are not usually covered since they are turned off when the location cannot be used for business purposes
- Income that is not on your records cannot be compensated. Furthermore, you need to properly document your business revenue and show potential growth as well.
- Losses from partial closures are also not compensated for mainly because partial damage caused by the incident does not have a direct impact on your business activities
- The losses caused by non-covered damages won’t be compensated like it is with some natural disasters such as floods and earthquakes
- Losses from power outages are also not covered as this is a hard risk to insure.
Why Should You Take This Cover?
It is hard for businesses to recover from periods where their activities are interrupted and their income is not steady.
Therefore, it is vital to take the necessary precaution by adding this cover on top of your everyday coverage.
Once you have an income injection, it is easy to pick up from where you left off before the business closure.
For an obligation-free, competitive quote, professional insurance advice or more information on how we can help you, please contact one of our expert consultants today on 1300 356 496 or send a message through our website
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