Business interruption insurance, also called business income insurance, is a type of commercial property insurance that protects against income loss as a result of destruction, damage or loss resulting in the closure of an insured property. Examples of this could be a fire starting in your restaurant's kitchen, a flood resulting from a burst pipe that damaged your warehouse or a storm that tore off part of your business' roof.
Your insurance company should offer a form of business interruption insurance that will cover the cost of necessary repairs and your revenue while your business is closed. The coverage typically lasts until your business returns to normal levels—although different types of insurance offer different coverages.
Any business owner should consider having business interruption insurance. Without it, should your brick-and-mortar business be exposed to a disaster that forces you to close your doors, you could find yourself financially crippled and unable to reopen. Not only would repairing the physical damage be a challenge to cover out-of-pocket, but you wouldn’t be making any money during the time your business is closed either. With business interruption coverage, you don't have to worry about bills like repairs, inventory, rent and payroll piling up due to a business closure. If you don't think your Calgary business could survive being closed for an indeterminate amount of time due to an accident or disaster, you need business interruption insurance.
There are a few different options when it comes to a business interruption policy. That's why it's important to check with your local insurance broker at Krywolt insurance to ensure you have adequate coverage for your business. Typically, business interruption coverage should protect your business from:
It's important to note that some natural disasters, like a flood, are not usually covered by a standard commercial property insurance policy—of which business interruption is usually included. If you operate in a high-risk area for floods—say down in Mission or Victoria Park—you need specific endorsements to protect against natural disasters.
Also, be aware that policies can vary greatly between different platforms. Check with your insurance agent to see if the policy you have (or are considering buying) is named perils or all-risk.
Lastly, be sure to update your insurance broker as your company's earnings grow. Some policies have an income cap and different coverage limits, so it's important to know if your current policy will cover you as your business makes more money in the future.
This type of insurance pays out until the damage to your business has been repaired or any damaged property has been replaced. It does not provide compensation for the difference in income between pre-interruption levels and what your income is when your business re-opens. So if you don't make as much money upon re-opening, your insurance policy will not match the difference. Also, there can be further limits on how long your business will be covered and how much insurance you can collect per month.
This coverage option will continue to pay out until your income is restored to what it was before you closed down due to an insured loss. Depending on your policy, it may only pay out until the policy's maximum period listed has been reached.
While the exact stipulations of your business interruption benefits will vary depending on your policy, below is a typical run-down of what benefits you can expect.
As comprehensive as business income insurance may be, it does not cover all losses. Some damage/loss you won't be covered for—without an additional policy—include:
If you have a commercial property insurance policy, you might have a section that includes “extensions of coverage.” This can be added onto your policy, but is not considered business interruption insurance—although it does provide additional coverages, such as:
Service Interruption: This covers direct physical loss, damage or destruction to electrical, steam, gas, water, sewer, telephone or any other utility service.
If you have multiple business interruption insurance policies, it's likely your policy has been structured to provide greater limits or broader coverage than what may have been available from a single policy. That said, it's important to talk to your insurance broker to understand your coverage completely.
You will have the option to choose what coverage limit you think is appropriate for your business interruption insurance policy in the event you suffer a loss from having to close your business. It can be a challenge to ascertain how much you need to be covered in a disaster.
When choosing the right limit for you, keep in mind that if your closure costs exceed the coverage limit you choose, you'll have to pay out-of-pocket for extra expenses. A good figure to consider in gauging how much coverage you need is your gross earnings and future profit projections.
There are a few stipulations when it comes to receiving business interruption coverage:
Yes. Payroll is usually covered in a standard policy so you are able to retain key employees while your business is closed.
Actual loss sustained, or ALS, is essentially industry jargon for the dollar amount of loss sustained while your business is closed—which is basically the amount an insurer will pay out for your claim.
Your Krywolt Insurance broker will be able to explain your business interruption coverage benefits in a clear and helpful manner. When you give us a call, we'll walk you through your policy so you know exactly what to expect in the event your business is closed due to an accident or disaster. We'll also answer any questions you may have, and can look for additional coverages to add to your policy so you have the best protection for your needs.
Usually, most insurance companies require that your business have a physical, commercial location to qualify for business interruption insurance. This means if you work from home, it's unlikely you'll qualify for business interruption insurance. Another consideration is how many prior business interruption claims you've made. If you file too many claims, it's possible you may be denied coverage.
Costs will vary greatly per policy. The primary impact on your policy cost will be the size of your business and the amount of income required to keep afloat. So, it's important that you carefully consider the number of physical assets your business has that are tied directly to your profit stream. You should also think about what other expenses you'll need to provide for while being closed—such as employee wages. Other factors to consider include: