Business interruption insurance: Making sure your FIRST disaster isn’t your LAST day in business

Published on Wed, 12/11/2013 - 15:18

Natural disasters have always been a tragic part of life. And in the past two decades, many widely publicized natural disasters have put the spotlight on the consequences of these unexpected events – and how crucial it is to be prepared – particularly for business owners.

As a business owner, you probably don’t give a second thought to insuring your facilities, equipment, products, and even your employees. However, a surprising number of business owners take a pass when it comes to insuring their ability to stay in business in the event of a disaster.

If you’re one those people, your first disaster could be your last day in business … unless you have the financial reserves to cushion a prolonged interruption of business operations, sales and cash flow.

Even if your own business is undamaged, the loss of a key supplier or customer can have a devastating impact. It only takes one event. Just ask the many businesses that were affected by Hurricane Sandy in October 2012. Some recovered and are still in business today. Many others weren’t so lucky.

Fortunately, you can offset this risk with business interruption insurance.

Business interruption coverage is intended to get your operation back to the same financial position it would have been in if the disaster had not occurred. In general, business interruption insurance can cover:

  • Profits you would have earned if the disaster had not occurred.
  • Fixed costs such as utilities and other operating expenses still being incurred during recovery.
  • Relocation costs of moving to and operating out of a temporary location.
  • Reasonable extra costs beyond your fixed costs that let you continue to operate during recovery.

Most standard business insurance policies cover only loss or damage to tangible items such as equipment, structures and inventory and do not cover lost profits if your business is unable to operate. So don’t make the mistake of assuming that your business insurance policy will take care of everything in case of a disaster. Your property loss might be covered, but your ability to stay in business may not be.

Business interruption insurance isn’t sold as a separate policy, but can be added to your property policy or included in a package policy such as a business owner’s policy (BOP). Standard business interruption insurance won’t cover every eventuality, and many business interruption policies exclude terrorism as a cause of loss, so you many also want to consider these additional coverages:

  • Contingent Business Interruption extends the coverage to include income losses incurred as a result of property loss at a key supplier or customer location.
  • Civil Authority coverage could respond if the government denies access to your business due to another entity’s property loss.
  • Service Interruption coverage can protect you against losses due to a disruption of utilities.
  • Terrorism Insurance is typically carried by large office buildings, public venues and shopping malls. However, in the recent Boston Marathon incident, many impacted small business owners wished they had it.

When it comes to disaster planning, the right insurance coverage is crucial. While not every disaster is as devastating as Hurricane Sandy, planning for that possibility gives you the peace of mind of knowing that you can weather any storm.

When you partner with Heffernan Insurance Brokers, we’ll make sure you have the resources to get back on your feet if the unthinkable should happen. Ask us how to protect your business today.