You do not know when disaster will strike. For a business, disaster can come in many forms. Fire, flood, earthquake, and other natural disasters are events that can cause a sudden and severe disruption to your business. The shock caused to your operations can send your company into a downward spiral of lost customers, lost profit, lost revenue, and a complete inability to stay in business. To protect yourself against this kind of contingency, you should take out business interruption insurance.
What is Interruption Insurance?
This type of insurance covers damage and events covered by your commercial property or business owner insurance policy. Interruption insurance will usually cover most catastrophic events that imperil your business, including theft, or damage from fire, wind, flooding, lightning, and falling objects.
If the facilities and offices used by your building are made uninhabitable and the equipment and merchandise within them are destroyed because of some destructive event, you may be reimbursed through this kind of insurance coverage. You can receive money for lost income from the items destroyed and money for lost earnings.
How Interruption Insurance Works
This type of insurance does not typically cover short term interruptions such as power outages. Nor does it cover losses sustained by events that are unrelated to property insurance. This includes COVID-19. If your company is among the thousands of other companies that have been shut down because of the pandemic, you are unlikely to get relief through interruption insurance.
The insurance will cover losses that directly and indirectly affects your business. In addition to the losses you may sustain from damaged goods and a weakened earning capacity, the insurance will also provide financial assistance if you have lost an important supplier or partner. It will cover your expenses while you search for a replacement.
In fact, the insurance will cover the interruption through a restoration period, which is the length of time it takes you to get your company back up and running. This lasts up to 12 months but can be extended. During this time, you will need to do all that you can to make repairs to damaged infrastructure and make new arrangements to get everything back on track.
What the Insurance Covers
Here are some of the specific items that your interruption insurance will cover:
- Lost revenue –Â If the property or infrastructure damage sustain by your company has significantly decreased your ability to serve customers, make sales, or attract and work with clients, then the insurance will compensate your company for lost revenue. The aim here is to ensure a temporary disruption does not threaten the existence of your business.
- Rent payments –Â If you rent or lease the space in which you operate, your landlord may require you to make payments regardless of the damage done to your company. Interruption insurance will cover this expense while you recover.
- Relocation expenses –Â The damage done to your facilities may be so severe that you can no longer work in them. You will need to move and set up shop in a new location. The interruption insurance will cover your moving costs and pay for rent in your new spot.
- Employee wages – To get your business back on track, you will need to retain your employees. To do so, you will need to pay them. The interruption insurance will cover your payroll obligations while your revenue is down. Most such policies cover the cost of a year’s worth of payroll.
- Taxes –Â The temporary interruption of your business operations will put you in a financial bind. However, you may still be required to meet your tax obligations. If you are unable to work something out with the IRS, your interruption insurance will ensure that you have the funds to meet these obligations even if your revenue is down.
- Loan re-payment –Â You may be able to alter the loan repayment plan with your bank. If this is not possible, your interruption insurance will cover these payments until you have the money to meet the obligation.
Getting the Right Insurance
If you have not taken out interruption insurance, then you should do so. The future existence of your company can depend on it. Interruption insurance has a coverage limit. This is the maximum amount of money your insurer will pay to cover your claim. Your company will be responsible for losses that exceed this limit.
Your premiums will depend on the amount of coverage you take out. And since every expense you undertake should be justified, it is important to think carefully about this decision. You should sit down with your executive team and ask the following questions:
- What are the threats and dangers to your facility?
- How old is your building?
- How advanced and up to date are the fire alarms, sprinklers, and other warning and protection devices in the building?
- How long would it take your company to recover from a disruption?
- How long would it take to find a suitable temporary location?
Making Your Claim
If you have interruption insurance and your company has suffered a disruption owing to a physical calamity, then you will need to submit a claim. Business interruption insurance claims are scrutinized hard by insurance companies. All insurance companies strive to minimize the amount of money they pay out in claims or apply the force majeure clause and dent claims altogether. That is why you will need a firm understanding of what is covered in your policy and your rights as a policy holder.
Before you make a claim, you should contact a business interruption attorney. The forms that you will need to fill out to get your money can be complex, tedious, and difficult to understand. The insurance company will use any excuse possible, including a simple error or misunderstanding on your part, to deny your claim. A business interruption lawyer will help guide you through the process of filling out the necessary forms, submitting the required documents, and getting the money you need to help keep your company afloat.
The severe damage done to your goods and facilities can put you out of business if you are not given the support and time needed to recover. You will become dependent on your interruption insurance to get through this difficult period. If the insurers do not live up to their obligations, then you may have to take legal action against them. The lawyer you hire can file a lawsuit on your behalf and fight to get you the money that you are entitled to.
Protecting Your Business
Taking out interruption insurance is all about protecting your company. When you need the insurance money, you should receive it. If your insurance company acts in bad faith, then they should be held accountable.
