The Importance of Business Interruption Insurance

One of the most vital types of business insurance that you can carry is business interruption insurance, commonly referred to as BII. Business interruption insurance is meant to cover loss of income if damage to your property makes it impossible to carry out your normal business operations. It is not commonly sold separately, but may be a clause that you can add to your business property insurance.

• Is Business Interruption Insurance Worth the Extra Cost?

The answer to that question depends on how important your business location is to your income. If the location of your business is critical to generating revenue, then BII is vital to your business. This is often the case for a retail or restaurant operation, but may not be as important for a service firm that does most of its business off site.

For example, if a fire at your retail store closed the site for repairs, business interruption insurance would pay you out a percentage of the income you’d typically bring in during the time that your business is closed. For a retail or hospitality operation, business interruption insurance often includes a clause that doubles the maximum benefit during specific periods of the year. Generally, those periods include the weeks before the holidays, but that may vary depending upon your business and specific arrangements with your insurer.

• What sorts of incidents are covered by loss of income insurance?

Generally, you’ll be covered for income losses arising from direct losses at your business. If flooding, fire or other damage results in your customers being unable to reach you, you are probably covered. However, you may also be able to negotiate coverage for other types of income loss that is not caused directly by damage to your own property. Some other losses that may be covered by your business interruption insurance include:

• Contingent business interruption

You can insure yourself about losses incurred when another business suffers a loss, if the operation of your business is dependent on theirs. If loss or damage prevents a supplier from filling your orders, for instance, and that prevention incurs losses for your business, you may be covered under a contingent business operation clause.

• Services interruption

A services interruption clause can protect your business if your business is affected by a loss of vital services – loss of electrical services, telephone services, refrigeration and air conditioning systems, sewage and other services that are vital to your business operation. These losses might include such things as the cost of spoiled food in a restaurant or supermarket because of equipment failure due to an interruption of electrical service, or loss of income because of phone service disruption.

• Interruption by civil or military authority

While most insurance cover does not include loss because of an act of war, you may be covered for losses incurred if your business is interrupted because access to your property is restricted by civil or military authorities. This might happen, for instance, if your business is shut down during a crime investigation, or because of fire or another disaster in a building adjacent or nearby.

• Extra expense insurance

Generally, business interruption insurance will not cover the extra expense of doing business after property damage. That includes the cost of renting alternate facilities, rental of equipment or additional expense for replacement of lost inventory needed to fulfill standing orders. Separate cover will be needed for those losses, unless your policy specifically rolls both extra expense and business interruption insurance into one item. Be sure to check with your insurance agent to find out exactly what your policy covers.

• Ingress/egress coverage

Ingress/egress coverage may be triggered if access to your property is impaired by any reason. This may include, for instance, the closing of bridges, tunnels, airports or subways that prevents people from traveling to your place of business.