According to a survey from Seattle-based Safeco Insurance, 55 percent of small business owners do not maintain business interruption coverage, and of those owners, 63 percent do not realize it.
Depending on the insurance form, business interruption allows a business that has been negatively affected by a covered peril to recover damages to avoid losing their business. The statistics show that one out of four businesses will not reopen following an extended shutdown due to a loss. By purchasing this coverage, it allows for renting temporary space, paying salaries and covering other operating expenses.
Companies will also offer business interruption with extra expense coverage. This offers additional coverage for costs associated with operating out of a different location. The biggest misconception business owners have is that they will never be out of business for any length of time.
Many BOPs (Business Owner’s Policy) and MOPs (Manufacturer’s Output Policy) offer some form of business interruption, and sometimes at no additional cost. Other policies will price the coverage based on the nature of the business along with the amount of coverage desired for a set period of time. An example would be a printing business which operates with special machines that would need to be specially reordered but knows they could be operating again in five months. Based on annual income, they may choose a limit based on one-sixth monthly limitation.
Business interruption requires three triggers to happen before coverage starts.
First, there must be an actual loss of income. This can be defined as net income and continuing operating expenses. Past accounting records can help to make this process easier.
Second, the business must experience a necessary suspension of operations during the restoration. ISO (Insurance Service Office) has defined this term to mean both a complete cessation of operation, as well as a slowdown. The ISO form requires 72 hours and ends when property should be repaired or replaced with reasonable speed.
Finally, the loss must result from direct physical loss or damage at the premises described in the declaration that is caused by a covered cause of loss.
Hopefully this gives you a brief overview of business interruption. Please contact your local insurance professional to discuss at greater length. iBi