As an entrepreneur, you’ve probably suffered from business income loss due to unexpected events such as a fire, theft, flooding, or machinery breakdown. And we all know how difficult it can be for your business to recover from such a loss. In fact, some businesses have shut down due to losses from unplanned calamities.
Fortunately, you can get business interruption insurance to take care of such unplanned events.
Business interruption insurance, simply referred to as BI, covers your business from lost income after the occurrence of insured damage. A BI cover puts your earnings back to where they were before the unavoidable business insurance interruption occurred.
So, shall we learn more about what business interruption insurance is and how it can work for you?
Read on.
What Is Business Interruption Insurance?
Business shutdowns caused by perils such as floods and earthquakes do not exempt you from your business obligations. Despite such unexpected events, you’ll still have to pay your rent, loan interest, employees’ salaries, and other business expenses.
The good news is that a BI insurance cover can ensure you keep running your business even after such a loss.
Business interruption insurance is a cover that protects your business from the financial loss caused by a covered event.
As stated by the Insurance Council of New Zealand (ICNZ), a BI cover helps minimise the financial burden from an unplanned interruption that causes damage or loss of business assets. The cover makes it easier for you to resume your business operations after the repair of the damage caused by the unexpected event.
Who Should Consider Business Interruption Insurance?
All business owners need business interruption insurance.
However, some businesses need this cover more than others.
Entrepreneurs that work from physical business premises are particularly susceptible to loss of income in case of an unexpected disaster. This is because such an event often makes it impossible to work from the business's physical location.
Also, a business that relies on assets such as buildings, machinery, and equipment to keep operations going should take a BI cover to cater for losses incurred in case of damage to such equipment.
Entrepreneurs that also rent out physical space to tenants should also consider getting business interruption insurance cover to ensure business continuity even when tenants are unable to pay their rent due to unplanned interruptions.
Businesses that are also located in places that are susceptible to natural disasters should also consider getting a BI cover.
What Does BI Insurance Cover?
Before taking a BI cover, ensure you read and understand the policy document.
Some of the items explained in the policy include the cover’s coverage limit. The business interruption coverage limit refers to the maximum amount that your insurer is willing to pay in case of a claim.
Additionally, the insurance policy will state the indemnity period, which is the duration your insurer will cover your financial losses after the occurrence of an insurable event. This is also the period you should take to repair and rebuild your business, and it usually starts from the date the damage occurs to the date you’re allowed to complete the repairs as stated in your insurance policy. It’s essential to note that your insurer will only be liable for your business losses during this period.
Another important feature of your BI policy is the list of insured items your insurer is willing to cover. Some common items that are often insured by most BI insurers include the following.
1. Gross Profit
The BI cover will reimburse you the profits you would have made if the unplanned event hadn’t occurred.
The reimbursement is often calculated based on the previous month’s gross profits. Ensure you check your business interruption insurance policy to understand the amount you can expect from your insurer, as this amount is what will help you stay afloat during the temporary interruption.
2. Employee Wages
Even when you shut down your business due to a temporary setback, you’ll still need to pay your employees.
A BI cover will take care of your employee wages in the period when you’re not making money. This ensures you don’t lose your employees due to the inability to pay their salaries after a temporary financial situation.
3. Loan Repayments
Your creditor expects you to pay your loan interest monthly.
When business interruptions occur, your business may fail to generate revenue. To ensure you don’t fall behind on your loan payments, a BI cover will pay for your business loan or mortgage monthly repayments.
4. Commission and Training Expenses
Do your employees need to learn how to operate new equipment after a covered calamity? A BI cover will take care of such training costs.
Also, if you need to make commission payments to an advisor or a salesperson for providing advice on how to operate new machinery, BI insurance will cover such costs.
5. Temporary Location
Most BI policies will cover the cost of moving your business to a temporary location due to the occurrence of the insured event.
In addition to the relocation costs, you may also incur marketing expenses, as you’ll need to promote your business or inform your old customers of the change in business location. Most BI policies do cover such costs.
6. Additional Operating Expenses
Business interruption insurance will also reimburse you for extra expenses you incur to keep your business afloat during the recovery period.
For instance, if you need to buy new office furniture or get new stock for your business after a fire, the BI cover will take care of such additional operating costs.
What Business Interruption Does Not Cover?
BI insurance covers different kinds of losses, but it doesn’t cover all types of business costs.
You may still need other insurance covers to take care of the below losses that aren’t covered by BI insurance.
- Damage caused by wars, communicable diseases, pandemics such as COVID-19, and other events whose loss is unquantifiable
- Undocumented profits not stated in your financial records
- Damage from floods and earthquakes that are covered by another policy
- Workers' compensations caused by work-related injuries
- Property damage that is covered under the commercial property insurance policy
- Cost of business utilities such as sewage, water, gas, or electricity as these are shut off during the repair period
Conclusion
Unplanned business shutdowns happen every day, and it’s important to prepare for such occurrences. Business interruption insurance acts as a cushion in case of an unexpected interruption, as it protects your business from income loss.
If you’re looking for a reliable New Zealand-based BI insurer, you should try out Vega Protect Services.
Vega Protect offers various insurance services, including BI insurance. Our experienced team will hold your hand and advise you on the best BI cover for your business. Vega-trained personnel will also help you understand the fine print in your BI policy so you can make an informed decision.
So, do you have more business interruption insurance questions? Talk to Vega Protect team today.
