What Is Business Interruption Insurance?
Business interruption insurance is a form of insurance coverage that replaces business income lost as a result of an event that interrupts the operations of the business, such as fire or a natural disaster. Business interruption insurance is not sold as a separate policy, but is either added to a property/casualty policy or included in a comprehensive package policy.
Business Interruption Insurance Explained
Business interruption insurance premiums (or at least the additional cost of the rider) are tax deductible as ordinary business expenses. This type of policy pays out only if the cause of the business income loss is covered in the underlying property/casualty policy. The amount payable is usually based on the past financial records of the business.
Business interruption insurance coverage extends until the end of the business interruption period, as determined by the insurance policy. Most business interruption insurance policies define this period as starting on the date of the covered peril and the damaged property is physically repaired and returned to operations under the same condition that existed prior to the disaster.
What Business Interruption Insurance Covers
- Profits. Based on prior months' performance, a policy will provide reimbursement for profits that would have been earned.
- Fixed Costs. These can include operating expenses and other incurred costs of doing business.
- Temporary Location. Some policies cover the costs involved with moving to and operating from a temporary business location.
- Commission & Training Cost. In the wake of a business interruption event, a company will often need to replace machinery and retrain personnel on how to use it. Business interruption insurance may cover these costs.
- Extra Expenses. Business interruption insurance will provide reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operating while the business gets back on solid footing.
- Civil Authority Ingress / Egress. A business interruption event may result in a government-mandated closure of business premises that directly causes financial loss. Examples include forced closures because of government-issued curfews or street closures related to a covered event.
- Employee wages. This is essential if a business doesn't want to lose employees while shut down. This coverage can help a business owner make payroll when you're unable to operate.
- Taxes. Businesses are still required to pay taxes, even when disaster hits. This can help you pay your taxes on time.
- Loan payments. Loan payments are often due monthly. Business Interruption coverage can help you make those payments even when you can't generate income.