What you need to know about Business Interruption Insurance
All business owners should seriously consider having business interruption coverage form part of their commercial property policy. Property policies and Business Interruption coverage goes hand in hand. In the event of a claim - one follows the other.
Property policies cover direct physical damage to insured property (think: equipment, machinery, office furniture, etc.) as the result of an insured peril (e.g. a fire). Business interruption insurance provides coverage for the loss of income during downtime, and/or extra expenses a business takes on as a result of that direct physical loss to the insured property. That means a physical loss, resulting from an insured peril, must occur first in order for the business interruption coverage to apply.
The Types of Business Interruption Coverage
PROFITS
This is the best form for larger manufacturing and restaurant/hospitality risks where sales may be affected even after the repair or replacement of damaged property is completed.
GROSS EARNINGS
The important difference from Profits coverage is that once the repair of the property is complete the coverage stops. This can be a problem if additional time is needed to replace lost contracts and/or get revenues back to normal. In this instance a Profits form is superior.
ORDINARY PAYROLL
In order to retain your valuable employees during a claim, you can choose to insure your Ordinary Payroll, up to a specified period of time (i.e. 90 days, 180 days). When you consider the time and costs involved in recruitment and selection, this fund could be invaluable.
GROSS RENTS
This is best suited for businesses that rent property to others with long term leases, especially multi-tenanted risks. Similar to a Profits form in that indemnity continues past restoration date (subject to Indemnity Period limitation).
EXTRA EXPENSES
This is best suited for offices and other risks that can set up and be back in business quickly with minimum effort. Instead of providing coverage for any loss in profits, this would only provide coverage for extra expenses that the business takes on in order to minimize or avoid any closure.
More Information
Each business is different – so it’s important to understand how a claim could impact the short and long term profitability in order to choose the right coverage. Talk to your broker to find out which one is right for you.
Click here to learn more about business interruption coverages, options, exclusions and more.
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