Hurricanes, earthquakes, and tornadoes in recent years and months have brought more attention to these types of business risks. While you may have arranged insurance to cover property damaged, have you considered losses incurred from an interruption to your small business operations? Most standard property insurance policies don’t cover income lost from a temporary closure of a small business.
When a catastrophe strikes, your location may be temporarily dysfunctional, and your operations may have to be stopped for a period. What’s more, your small business may have a halt in production, causing a pause in your income. However, you may still need to pay your fixed costs, such as property rent, utilities, employee salaries, suppliers, and taxes. That’s where business interruption insurance comes in.
Business Interruption Insurance, also known as business income insurance, covers lost income that your small business would have made while the location is inoperative for production due to an unexpected event, such as a fire, hail damage, wind storm, equipment damage, or vandalism. Even though your business location is deemed unusable, business interruption insurance picks up the tab for costs and expenses incurred by your business during this period. If your small business is temporarily moved to another location to resume operations, business income insurance will cover the costs of the move and operations. Lastly, extra expenses, such as renting equipment to keep the doors of your business open are also covered.
Business interruption insurance is easy for the small business owner to overlook, who may think that they are covered from business interruptions through their property insurance. But it bears repeating: property insurance only pays damages for physical loss to the location and its contents — not the loss of income or fixed costs incurred while the location is being rebuilt. Keep in mind, that the cause of the business disruption doesn’t always have to be a major disaster, such as a fire destroying your building; it can be as simple as a lightning strike causing equipment failure and a production shut down.
Besides the financial coverage, business income insurance protects a small business in other ways. It allows you to set up shop in another temporary location to keep your business going, which not only helps you maintain your business competitiveness, but enables you to continue providing products and services to your existing and prospective customers.