Getting your business insured with the right type of insurance can be a difficult nut to crack. Business insurance can cover a litany of things, depending on its terms and the type. The one question that arises with owning a business is that when mishaps occur ‘how do we keep our income stable?’, ‘What will cover the loss of gross profit and the extra costs of operations during the period of the event that pauses the business operations?’. This is where Business Interruption insurance comes into play.
Before we dig deep into what is Business Interruption insurance, let us look into a few examples where an unexpected event causes loss in income.
- A power outage can lead to a temporary shutdown leading to loss of income. Businesses from small convenience stores, large supermarkets, petrol stations, etc., all need electricity to provide various services. Even a single day of a power outage can lead to stock/products in the refrigerators or heating cabinets spoiling, which affects the overall profit of the business.
- The loss of profit and revenue earned by the business due to theft can be a major hit. It affects the ability to pay the employees, stakeholders, and even operating expenses. This is a huge risk for small businesses like convenience stores, restaurants, and bars, currency exchange companies, car dealerships, dry cleaners, etc.
- Internet outage: Many IT-based firms run on internet to provide services, and an outage can result in the reduction of net income. Even takeaway outlets like small restaurants or large food chains can experience a major loss in income due to decreased online orders from the internet outage.
- Even a simple shutdown of ethos machines for many businesses can result in decreased product sales which in turn affects the profits.
- If a business owner owns a commercial premise and rents it out to various tenants, but after an event of a fire in the premises, the property can no longer be used for a period of time, the policy comes into action and recoups this loss of rental income.
The complexity of businesses and the noticeable potential for losses as a result of disasters have led to the rise of Business Interruption Insurance. It is a way of ensuring the income of one’s business in case of loss due to a setback.
As a business owner, whether of a large retail business or a small hospitality business, ensuring that your business is covered and continues to perform its financial obligations to the shareholders, staff, a bank, or other stakeholders is crucial when things go sideways.
While Business Assets insurance covers the amount of physical losses such as machinery, land, vehicles, etc., it does not cover the potential revenue loss.
Business Interruption covers a business in case of interruptions. Instead of covering a business for physical loss such as damage to the premises, equipment, or people, Business Interruption covers when the insured entity suffers through financial or income losses due to unforeseen events like natural disasters, fire, government interference, unexpected events, etc.
The policy also covers operating expenses, such as electricity, or broadband that continues even though business activities have come to a temporary halt.
This insurance is focused on the “period of interruption” and the “estimated profit loss”. The “period of interruption” is the extent of time following the occurred disaster in which the physical assets needed for the business operations are not producing income. The “estimated profit loss” is the value of loss in income which is estimated based on the business’s previous documented financial records during normal operating periods.
It allows your business the funds to maintain your income while being closed, pay for additional expenses like advertisement costs to inform your customers of a new location due to the effects of the interruption, to organise and quantify your claim and meet the financial obligations to the bank, staff and shareholders.
While Business Interruption insurance can help a business survive a calamity, there are limitations and exceptions to this type of coverage. It is important to fully understand the potential risks that your business might undergo by discussing with an experienced insurance broker.
Every insurance policy has different terms and conditions that will determine the claim in case of an unfortunate event. At Aim Associates, we will help you sort out the right level of cover and advise as per your business’s unique requirements. We can help determine the important requirements that should be included in your policy and the ones that are not so important to keep your costs as minimal as possible and that you only pay for what is essential. We are experienced insurance providers with expert knowledge in all kinds of Business Insurance, if your business needs a cover, talk to us today and find out what type of insurance your business needs and what it means in the long run.