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:
- Damage to your storefront from fire or vandalism
- Damage to a neighbouring business
- A disruption to your supply chain
- A major loss of revenue due to a client facing their own losses
- Burst pipes flooding your business
- Fires damaging your business
- Windstorms harming part of your building
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.
- Named Perils: Protects you against the risks that are specifically named in your policy, and only these risks.
- All-Risks: Protects you against all risks, except those specifically named as exclusions in your policy.
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.
Limited Indemnity Business Interruption Insurance
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.
Extended Indemnity Business Interruption Insurance
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.
What Business Interruption Insurance Policy Covers
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.
- Loss of Business Income: Your policy should provide reimbursement for profits—based on the prior month’s performance—that you would have earned had you not had to close.
- Payroll/Employee Wages: Covering your employees wages is essential if you don't want to lose them while you are shut down. This coverage will provide payroll even though you're not operating.
- Rent or Mortgage Payments: Just because you're not operating doesn't mean your lender or landlord won't expect rent/mortgage payments. This coverage ensures you can make payments on time.
- Repairs: If your business was damaged due to vandalism or an accident, this coverage will provide for construction for rebuilding any property damage.
- Rental Equipment: Should you continue to operate out of a temporary location and need to rent machinery, tools or other equipment you lost or don't have access to, this coverage will also provide for that.
- Temporary Location: Depending on the policy, you may be covered for the cost of moving to and operating from a temporary business location—such as a pop-up.
- Commission and Training Cost: It's likely that upon reopening you'll need to hire new staff and possibly purchase new machinery. This means you will need to spend time training new employees—some policies will cover this expense.
- Extra Expense Coverage: Typically, business interruption insurance will provide for reasonable expenses, beyond repair, income loss and rent/mortgage payments, until your doors open once more. Talk to your insurance agent to see what is and what is not covered by your policy.
- Civil Authority Ingress/Egress: Sometimes, your business may be forced to close because of a government-mandated closure, like a curfew or street closures related to construction. This coverage provides compensation for any financial losses during this time.
- Taxes: Even in the midst of a disaster, you'll still be expected to pay taxes. This coverage ensures you can pay taxes on-time and avoid any penalties.
- Loan Payments: If you have other loan payments aside from a mortgage—such as a startup loan—with this coverage you'll still be able to make payments even if you're not generating income.
What Business Interruption Insurance Does Not Cover
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:
- Broken Items: Such as glass, display cases and merchandisers.
- Flood Damage: Natural disasters require a separate insurance policy.
- Undocumented Income: Any income not listed in your business' financial records will not be compensated.
- Utilities: Including electricity, gas and water.
- Communicable Diseases and Pandemics: If you have to shut down because of an outbreak among your employees or even a global pandemic, you will not be covered.
Additional Coverage Options
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:
- Leader Property: This covers any direct physical loss, damage or destruction to another property that may impact your business operations. For instance, if you own a café in a municipal park and the park has to close—impacting your business.
- Contingent Business Interruption: This covers loss, damage or destruction of property owned by others. Say if your kitchen catches fire and also impedes your neighbours' business operations.
Service Interruption: This covers direct physical loss, damage or destruction to electrical, steam, gas, water, sewer, telephone or any other utility service.
How Does My Coverage Work if I Have More Than One Business Interruption Insurance Policy?
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.
How Much Business Interruption Insurance Coverage Do I Need?
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.
What are the “Limits” on a Business Interruption Insurance Policy?
There are a few stipulations when it comes to receiving business interruption coverage:
- Depending on the policy, you'll have access to different benefits. That's why it's imperative to know exactly what to expect from your insurance provider.
- This type of coverage is limited to either your business' projected gross income or your net profits.
- You will not start to receive benefits right away. There will be a wait period between when your claim is filed and when the coverage is paid out.
- The full amount of expenses will not be paid out if you're not properly allocating funds to your business' recovery.
- If your policy covers far more than your actual profit, your insurer may adjust the amount of payout so it's more accurate.
- Coverage has a limited payout time, typically an insurer will payout for no longer than 12 months.
Does Business Interruption Insurance Cover Wages?
Yes. Payroll is usually covered in a standard policy so you are able to retain key employees while your business is closed.
How Does Actual Loss Sustained (ALS) Work in Business Interruption Insurance?
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.
Who Can Help Me Understand My Business Interruption Insurance?
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.
Who is Eligible for Business Interruption Insurance?
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.
How Much Does Business Interruption Insurance Cost?
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:
- Your industry
- Your company's size
- Coverage limits
- Your location
