What Is Business Interruption Insurance?

2020 has been an exceptionally uncertain year, impacting both individuals and businesses. Countless businesses faced interruptions, leading owners to make tough decisions, including closing their doors to the public. These challenges weren't solely attributed to COVID-19 but also resulted from civil unrest, natural disasters, and unforeseen events.

In such times, the significance of business insurance, particularly business interruption insurance or business income insurance, becomes paramount. This discussion delves into the crucial role this insurance plays in ensuring business continuity and effectively responding to potential losses.

Business Interruption Insurance – What Is It?

Business interruption insurance is a coverage type that activates when a business experiences income loss due to unforeseen circumstances, particularly unexpected disasters like flooding, hurricane damage, fires, or events such as the COVID-19 pandemic.

It's essential to note that this insurance isn't typically sold as a standalone product but is usually included in a comprehensive package, as an add-on, or rider. A typical business interruption clause might read:

"The Insurer shall pay for actual business income loss the insured sustains due to the necessary suspension of 'operations' during the period of 'restoration.' Suspension must be a result of direct physical loss, damage, or destruction to the insured party’s property and result from a covered cause."

Several key conditions need fulfillment for business interruption insurance to be applicable. Key elements include:

Actual Business Income Loss

Coverage is limited to the actual loss a business sustains due to an unforeseen disaster leading to a business interruption. The insurer pays based on the business's past performance or the policy limit.

Business Income

Business income encompasses net income and operating expenses, including salaries and overheads that must be paid despite the suspension of operations.

Restoration Period

The insurer is liable to pay for income lost during the restoration period—the time needed to bring the damaged or destroyed property back into operation. This period begins at the occurrence of the loss or damage and extends until the property is reasonably repaired or rebuilt. The coverage persists until the limit is reached or the restoration period is complete, even if the policy expires during this time.

Contingent Business Interruption (CBI)

This is an insurance extension covering the loss of business income due to damage to assets or property owned by a third party, including suppliers, receivers, manufacturers, and lessees.

Civil or Military Authority Business Interruptions

This clause covers actual loss of business income due to civil or military prohibitions, with coverage extending up to 30 consecutive days unless otherwise specified.

If you'd like to learn more about business interruption insurance or are looking for ways to protect your business against uncertainties, get in touch with us via call or email. We'll help you keep your business safe and ensure continuity, all while helping you maintain your legacy!