Business interruption insurance is a constructed portion of broader types of policies for commercial insurance. This specific coverage is generally located in insurance policies for commercial property and BOP (business owner’s policies).
It can only be triggered within three types of limited circumstances that include the following:
- The physical damage that a property sustains is so severe that the company has been forced to stop operating.
- Physical damage to other types of property that has occurred from loss that would have been covered by the company’s insurance. This damage has partially or totally prevented employees or customers from being able to gain access into the company premises.
- Government has made the decision to shut an area down caused from property damage that has been caused by perils that are covered by a business’s insurance policy that now prevents employees or customers from being able to access the premises.
Even after covered events occur, many policies will state that there are waiting periods that are usually up to several days. This waiting period will need to progress before the insurance is activated. Once this insurance is active, the coverage will not be retroactive in regards to the exact day of the accident or event.
The coverage will be limited, especially once waiting periods have expired. The coverage can be used for expenses related to temporary relocation, loss of net income and for ongoing expenses like payroll that will allow the company to carry on paying their employees opposed to letting them go.
The coverage is never open ended. This type of coverage is only available as long as it may be necessary in order for the company to be in full operation again. The coverage will generally not extend past 12 months. Additionally the company will need to provide all losses related to business interruptions to their insurer.
Insurance For Business Interruptions Is Limited
It is important for business owners to understand that the coverage involved in business interruption should not be regarded as a “blank check” that can be used for every type of business disruption. Added to the above mentioned limitations, this coverage has restrictions that include the following:
Cessations, slowdowns and suspensions that are considered to be a covered event will be covered.
Net income that is lost caused from unfavorable business conditions after a loss will not be covered by business interruption insurance.
One of the misconceptions that have arisen is that this coverage does not serve a useful purpose. However, this type of insurance can provide vital protection in the circumstances that a company undergoes an event that they are unable to control.
The primary purpose of this insurance is essential in protecting a company from losses that come about due to the inability to operate normal operations and the inability for customers or employees to enter or occupy the company premises. This insurance can save a company from going under.