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To ensure the survival of a company, business interruption insurance is a valuable tool. Although some companies may never use it, having this coverage can be the difference of recovering from a detrimental event or closing the doors forever. Business interruption coverage is just as important for any business as flood insurance is for an oceanfront business. Most people would never start a company without insuring their property and inventory from storms, vandals and perils.
Fires, mold, floods and even injury lawsuits may cause a business to close its doors temporarily, and the building or machinery may be unusable for some time. Business interruption insurance is added to a property insurance policy. After any type of disaster, shutting down the business costs the company a considerable amount of money in lost revenue each day. When this happens, customers start going to competitors. In some instances, they may be less likely to return even if the business reopens in a timely manner and offers incentives for returning.
Business interruption insurance covers any lost income if the company must shut down the building. Estimated earned revenue is based on average calculations that use the past year’s financial records. Also, this type of insurance covers expenses that still exist without operations continuing. For example, the electricity may be left on, and that would be covered.
When adding business interruption insurance to a property policy, be sure that the limits are enough to cover the company’s expenses for at least a week or more. This amount may need to be adjusted each year for a new and growing business. Many people make the mistake of buying insurance for an inadequate time period. In some cases, it takes a few weeks to resume operations. In most cases, business interruption coverage does not start until 48 hours after the business shuts down.
The cost of business interruption coverage depends on the nature and location of the business. For example, a real estate business located in an area that receives plenty of rain would cost less to insure than a restaurant that is located in a known fire risk zone. The added risk of ovens and stoves would increase the cost further. Also, insurers consider how easily a business could operate elsewhere. While the real estate company may be able to work from a temporary office location, the restaurant would not be able to easily resume offsite operations.
There is also coverage for extra expenses. This type of insurance reimburses a company for the amount of money spent that exceeds average operating costs. If it helps lower business interruption costs, extra expenses coverage will be paid in most instances. For some people, extra expenses coverage by itself may be sufficient instead of business interruption insurance. However, this only applies to businesses with workers who can work from home, at a library or at another location. To learn more, discuss this with an agent.