What is Business Interruption Insurance?

Business interruption insurance is a type of insurance coverage that takes care of business' income loss in case of a natural disaster. It compensates for the business' revenue loss as a result of a calamity. When a disaster strikes, a company is likely to shut down its operations to work on its recovery. In other words, the damage will, to some extent, interrupt the activities, and this is where this insurance policy comes in handy. It replaces the amount of income a business has lost so that it can be able to continue with its normal operations.

How Business Interruption Insurance Works

Note that insurance companies don't issue business interruption insurance as a separate policy. Most insurance providers usually add it to a property or casualty policy or make it part of a comprehensive package policy. It is important to note that this type of cover is different from property insurance, which covers only the business' physical damage. Business interruption insurance covers both the physical damage as well as the profits that the company would have earned. Business interruption insurance applies to all types of businesses. It designed to ensure that it restores a company to its financial position. The way it would have been if it were not for the loss is has suffered.

What Business Interruption Insurance Covers

Most business owners get confused when it comes to the extent to which business interruption insurance will cover their loss in case of a disaster. The policy typically includes the following: 

Profits

Based on the prior business' financial statement, the insurance company will compensate for the financial losses resulting from business interruption. Note that disaster may lead to loss of revenue, rental income loss, including additional staff costs. So, the policy will cover all the income lost during the restoration period (time taken to restore or repair the physical damage to the property undercover). 

Temporary location

In case of extreme damage to the business' buildings, the company may move to a temporary place to continue with its operations. In this case, the policy will cater for such extra expenses. 

Extra Expenses

The policy usually does a reimbursement of expenses that goes beyond fixed costs. The additional payment ensures that the business continues with its operation as wait for the repair of its property. 

Commission and training costs

When insurance replaces things such as machines, they usually cater to operators' training costs, so that they can learn how to operate the new equipment. 

Employee wages

When disaster strikes, it does not mean that the company stops paying its employees. So, business interruption insurance ensures that the company can make payrolls for its employees as it works on resuming its operations. The policy is essential for those companies that want to retain their employees even though out of service. 

Civil Authority Ingress

Any government directives like curfews or closure of the street usually affect businesses operating within and around that particular place. If your business is working in such an area and you have a business interruption insurance cover, then the insurance will compensate you for the lost revenue. 

Loan Payments

Most loan payments are due every month. So, business interruption insurance cover can help you to continue paying loans even though the business is not generating income. 

Taxes

Despite disaster hitting the business, the company must still pay taxes. If you cover your business with this type of insurance, it helps you pay taxes on time as you work on restoring your business operations.

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