Coverage for Business Interruption

When selecting business insurance, many business owners pass on business interruption coverage, mainly because of the price tag. However, given the increasing number and severity of natural disasters in today’s age, this type of policy is something you may want to reconsider for your own business.

But you already have business insurance…

True, your current policy may cover loss of equipment, inventory and buildings—all tangible items—but most policies will not cover lost profits following an interruption of daily operations. If a hurricane knocks out an online retailer’s warehouse, the building structure may be covered but those lost sales will not.

In order to receive such coverage, you’ll need to document your current net income, including consecutive months of rapid growth to allow for income projection during an interruption. When choosing a business interruption policy, watch out for low per-incident limits. Standard policies generally cover $30,000 per-incident, but your business may be more profitable, requiring a larger coverage cap.

Remember to calculate more than just your projected lost income in the event of a business interruption. You also need to take into account any expenses that would continue, such as loan or lease payments, employee salaries (if you choose to keep your staff on board) and taxes. You can also subtract costs that may cease, such as utilities for an unusable building.

You also need to be aware of the limitations of business interruption policies. If a building you rent or own is destroyed, the cost of renting or buying a new building may be higher than what you were previously paying. Many business interruption policies will only cover the old rate.

Even though your business is covered, a related business that you rely on won’t be covered under your policy. For instance, if your website host’s server farm undergoes a disaster, your website will suffer the consequences as well, causing profit losses for your business. However, contingent business insurance can be purchased to make up for this coverage gap.