Most business owners are aware of their risks. They are familiar with theft, property damage, security breaches and possibly liability incurred from the products they sell. However, imagine what happens if your successful business suffers a catastrophic loss because of a fire or explosion that destroys a portion or all of your facility.
While there is the physical loss of the property and liability issues for those injured, there can also be a significant loss of revenue in the time it takes for your business to return to normal operations. How will you pay the rent or mortgage on your building or the lease payments on office equipment? Will you be able to continue to pay your employees or will your quality workforce abandon you to find work elsewhere? Will a forced closure cause your clients to go elsewhere, and how easy will it be to gain them back? The ongoing effect of an unexpected closure could impact the business for several years to come.
Business interruption policies can alleviate those issues, as it is designed to compensate for the loss of income during the time it takes to repair or restore the physical damage to your business. If your business is forced to shut down while the property is repaired or rebuilt, it would still have ongoing expenses. Such policies can cover loan payments, taxes, employee salaries and normal overtime, and even rent for temporary locations so your business can resume operations—even if only in a diminished capacity.
For large businesses with complicated or specialized operations, business interruption polices are generally purchased as a separate policy. The underwriting is a complicated process requiring the business to complete several worksheets to determine a 12 to 24-month process of how revenue is generated and what a payout should be if a catastrophic loss occurs. Some businesses may be restricted to zoning laws, so it may not be an option to move to a new location while repairs are made. Therefore, a 12 to 24-month claim period may not be unusual for specialized companies. For smaller businesses, business interruption is usually included in a business owners policy. Should an interruption to operations happen, the policy automatically kicks in to cover payroll expenses, bills, loans and other business overhead during the time it takes to return to normal.
While the most likely claim often results from a fire, business interruption may not be the fault of the business. If a work crew cuts a water line, fiber cable or other utility service during construction in the community, the municipality may repair the line, but the revenue a business loses during a prolonged utility outage is on the business. This is a claim a business can file with their insurance carrier.
Like most insurance policies, the underwriting for a policy is done up front with the insurance carrier determining what a payout will be for a company. With business interruption that is included in a business owners policy, carriers consider interruption a known exposure, so coverage is often unlimited for 12 months. It is in the best interest for both the business and the insurance company that the business returns to operations as soon as possible.
Business interruption coverage can help prevent an already devastating catastrophe from turning into a financial disaster and could be the difference between reopening after a forced shutdown or the inability to recover from losses. If you have questions regarding your business interruption coverage or are interested in expanding your coverage, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.