What is Business Interruption Insurance?
Business Interruption Insurance or business income insurance covers income loss from a disaster like a fire, flood, windstorm, etc. This includes income lost due to the temporary closing of a business facility to rebuild after a disaster. It considers and will provide coverage for the profits that would have been earned had the business remained open. In contrast, Property Insurance covers only the physical damage done to the business.
This policy is designed to help your business recover and remain in the same financial shape it would have been had the disaster not occurred. The extra insurance coverage can be added to your Property Insurance plan to make it more comprehensive. Here are some essential terms to understand when it comes to Business Interruption Insurance:
- Actual Loss Sustained: This refers to the big picture of what a company loses after a disaster. It encompasses physical damage and the income lost when a company is inoperable for some time. Actual loss sustained business interruption insurance typically covers this actual loss unlimitedly, while Property Insurance alone does not.
- Business Income: This includes the net income a business would have earned had the disaster not occurred and the business could remain operable. Business income is also used by some insurers to describe their business interruption coverage.
- Period of Restoration: The time needed to rebuild or repair damaged property. This restoration period begins when the damage occurs and lasts for an agreed-upon time period, as defined by the policy (usually 12 or 24 months), in which the property should reasonably be able to be repaired. Insurers are liable for the loss of business income during this time.
What Does Business Interruption Insurance Cover?
- Loss of profit because your business cannot operate.
- Employee wages during the period of closure when you cannot pay them.
- Expenses for loan payments and rent or mortgage payments.
- Construction costs for rebuilding your damaged business structures.
- Temporary relocation costs as you rebuild your permanent office.
- Rental equipment costs to operate as your business is interrupted.
- Any taxes your business is subjected to so you can pay on time and avoid penalties.
- Training and employee onboarding costs associated with new equipment or replacement parts for existing equipment.
Who is Eligible for Business Interruption Insurance?
Unexpected losses can interrupt your business regardless of industry or size. If you’re a business owner, you should consider purchasing business interruption insurance.
You can add business interruption insurance to your coverage if you have a business owner’s liability insurance or property insurance policy. This is important because if you don’t have business interruption insurance and you’re forced to close temporarily, your traditional property insurance alone will not cover a move or a loss of income.
4 Ways A Business Interruption Claim Works
- Operation expense coverage is provided for a temporary location while repairs to your insured permanent location are completed.
- Coverage for the profits that your insured business would have earned, based on previous financial records, had the disaster not occurred.
- Compensation for lost income if your business must vacate its premises due to disaster-related damage covered under your property insurance policy.
- Coverage for business operating expenses such as utilities that must be paid even though your commercial operations temporarily cease.
Is A Business Interruption Insurance Policy Worth it?
Yes! As with any type of insurance, you’ll regret not having it in the event of a disaster. Most business interruption insurance plans of this kind cover some or all of the following:
- Profits: Any profits you would have earned during the closure period had you remained open and operating as usual.
- Rent or Lease payments: Even if your business premises are unusable after a disaster, you may still be expected to pay rent. Business Interruption Insurance covers this so you don’t fall behind on payments.
- Employee Wages: If your business closes and revenue is no longer generated, you probably won’t be able to continue paying employees. This results in losing employees as they are forced to find other jobs. You can continue making payroll during the closure period with Business Interruption Insurance. Your employees will thank you.
- Taxes: Unfortunately, businesses are still expected to pay taxes after a disaster. Coverage will help you pay on time and avoid penalties.
- Training Costs: In the aftermath of a disaster, you may need to replace equipment and retrain employees to use the replacements. This policy can cover these training costs.
- Loan Payments: If you have an outstanding loan, you’ll still be expected to make payments, even if your business is partially or completely closed. Coverage of this kind will allow you to stay current on payments.
- Government-Mandated Closures: If government actions temporarily cease business operations, Business Interruption Insurance protects you from the resulting losses.
How Much Does Business Interruption Insurance Cost?
The cost of coverage depends on the risk of disaster for the premises and how much coverage you buy. Factors such as location, the nature of the business, potential risks, and the business’s ability to function at an alternate temporary location all determine the cost. Business interruption Insurance policies must be added to an existing Property Insurance policy.
Your policy should cover a period sufficient for rebuilding and re-establishing pre-disaster revenue levels.
All too frequently, companies with a manufacturing income statement report lower values than necessary. The gross profit after reduction for the cost of goods manufactured is generally lower than the gross profit that should be reported for business interruption purposes because the cost of goods manufactured includes fixed costs such as rent and depreciation.
Experts confirm that business interruption coverage is not fully understood by all business owners and accountants.
For instance, when declaring annual values, this lack of understanding may lead to mistakes such as:
- Only insuring for the net income of the business
- Failing to insure all of the fixed and semi-variable expenses of the business
- Not insuring “non-cash” expenses of the business, such as depreciation
To sum up, business risks can and do occur when you least expect it.
Find the Right Business Interruption Insurance from ALIGNED
Business risks can and do occur when you least expect them. We know how to align business interruption coverage to best address your organization’s specific risks.
This is just one of 11 reasons why our team of Canadian commercial insurance brokers focuses exclusively on meeting businesses’ needs.
At ALIGNED Insurance, your peace of mind is our priority. Our team will work to address your specific needs and deliver a policy that gives you the protection you need at a price that works for your budget. Click Here To Get A Quote or contact one of our business insurance experts for information or any questions.
We only work with top Canadian insurance companies. Our brokers know the marketplace. We’ll search the market for the best value and options in Toronto commercial insurance. We’re ALIGNED.
