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Business interruption insurance steps in when your business needs to close doors for repairs after an accident or weather disaster. It covers you for losses related to operating your business, such as lost revenue or increased operating costs. You choose how much revenue to cover and the time period you’ll receive benefits.
Business interruption insurance protects you against losing income if an unforeseen situation forces you to shut down. It can also kick in if you keep your doors open but need to scale back or operate at a higher cost than normal. You’ll get protection for business closures that last longer than your one- or two-day waiting period.
For example, if vandals destroy your jewelry shop and steal expensive rings, commercial property insurance can repair damage and replace the jewelry. But business interruption coverage can help with lost revenue from sales while you’re closed.
Understand more about how business interruption insurance works with these common insurance words:
Your business interruption coverage is unlikely to help if you shut your doors because of the coronavirus. Current lawsuits between businesses and their insurance companies are playing out throughout the country. If you’re wanting to press this point with your insurer, you could have a case in specific scenarios:
Not every business will get reimbursed for closing its doors, including these situations:
Business interruption can cover full closures as well as other situations like:
Business interruption insurance covers any situation also covered under commercial property insurance. However, that means losses from earthquakes, flooding, power outages or damage to a neighboring property may not be included. You’re protected against:
Many businesses benefit from covering interruptions to your revenue stream. Reasons you might need this insurance:
To figure out what limits to set for your business interruption policy, you can estimate your annual and monthly revenue using your sales history and projected growth. Then, think about how long your business might take to reopen in different situations, including a worst-case scenario.
Next, multiply your expected monthly revenue by the number of months you’ll need to restore your business. You might factor in costs to relocate or continue emergency operations. This gives you an idea of how much coverage you might need. However, check with an insurance professional to make sure you’re buying enough coverage.
Nick Thomson runs a family-owned bicycle shop that anticipates $200,000 in revenue this year. Nick believes he could resume running the shop in a worst-case scenario after six months, limiting coverage to $100,000. When a fire causes Nick to partially close doors for four months, his insurance payment includes:
|Lost revenue||$50,000||Nick’s lost revenue is calculated based on actual sales, rather than the coverage selected.|
|Temporary relocation||$10,000||The insurance company saved money by helping Nick reopen doors in a different location earlier than expected.|
|Higher operating costs||$1,000||Nick saw higher expenses for reopening in a new location while still paying fixed costs for the usual shop. These may offset by costs Nick won’t pay during this time, such as electricity.|
|Advertising||$2,000||Nick spent money on local advertising to announce his shop’s temporary location.|
|Waiting period losses||-$1,800||The bicycle shop absorbs the lost revenue and operating costs during the 48-hour waiting period.|
Business interruption insurance can stave off revenue losses after damage covered by your property insurance happens. Weigh the benefits of different business insurance companies to meet your insurance needs.
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