Understanding Business Interruption Insurance

Business interruption insurance restores revenue lost due to a disaster. A fire or a natural calamity, for instance, could be the event. Business interruption insurance is not marketed separately, but rather as an add-on or rider to a property/casualty or comprehensive package policy.

Premiums for business interruption insurance (or at least the rider's additional cost) are deductible as ordinary company costs. This policy only pays out if the underlying property/casualty coverage covers the cause of the company income loss. The amount owed is usually determined by the company's previous financial records.

Insurance coverage for business interruption lasts until the conclusion of the business interruption period, which is set by the insurance policy. The normal policy is 30 days, according to the Insurance Information Institute, but an endorsement can extend it to 360 days. 1 Most business interruption insurance policies define this period as the time from when the covered risk began to when the damaged property is physically repaired and restored to its pre-disaster state. There may also be a 48-72-hour wait time.

The following are usually covered by business interruption insurance:

1. Profits: A policy will reimburse profits gained if the event had not occurred, based on previous months' performance.

2. Operating costs and other incurred costs of the running company are examples of fixed costs.

3. Some plans cover the costs of relocating and operating a business from a temporary site.

4. Costs of commission and training: Following a business interruption, a corporation may need to replace machinery and teach employees how to use the new machinery. These charges may be covered by business interruption insurance.

5. Extra expenses: Business interruption insurance will reimburse reasonable expenses (beyond fixed costs) that allow the company to continue functioning while it recovers.

6, Ingress and egress of civil authorities: A business interruption event may result in government-ordered business closures, resulting in direct financial loss. Forcible closures due to government-issued curfews or street closures relating to a covered event are two examples.

7. Wages of employees: If a business does not want to lose employees while shutting down, wage coverage is critical. When a business owner is unable to operate, this coverage might assist them in paying their employees.

8. Taxes: Even in the face of calamity, businesses must continue to pay taxes. Tax protection ensures that a company pays its taxes on time and avoids fines.

9. Payments on loans are often payable every month. Business Interruption insurance can assist a company in meeting its obligations even if it is not making money.

You will not be covered for the following things, according to the Insurance Information Institute website:

1. Items that have been broken or lost due to a covered event (such as glass)

2. Damage caused by flooding or earthquakes is covered by a different insurance policy.

3. Undocumented revenue that isn't accounted for in your company's books

Utilities

4. Viruses, pandemics, and communicable diseases are all examples of contagious diseases (such as COVID-19).

Business Interruption Insurance Requirements

It's worth noting that the insurer is only bound to pay if the insured suffered a loss as a result of the disruption. The sum of money recovered by the business will not exceed the policy's maximum.

During the COVID-19 outbreak and the resulting company shutdowns and curtailments, it's no surprise that what business interruption insurance covers and what it doesn't have come under scrutiny. Regrettably, policyholders will not be covered in the vast majority of cases.

Exclusions apply even to all-risk business interruption insurance. And, as Dunsavage points out, since the SARS outbreak in 2003, those exclusions have tended to encompass losses due to viruses and infectious diseases.