From fire to severe storms, and even vandalism, unprecedented events can be devastating to small businesses. That’s why it’s vital that small businesses are protected financially with business interruption insurance.
But what exactly is it? Not to be confused with property coverage that protects damaged equipment or product, business interruption insurance can help pay for lost income if you’re forced to close your business for a period of time. This will help you get back up and running as quickly as possible.
As a small business owner myself, I know how vital things such as equipment are to my day-to-day work, and how badly this could impact me if any of it were stolen or damaged. For businesses in retail, catering, and beauty, where shops and salons are central to running the business, the stakes are even higher. As such, including this type of insurance as part of their business owner’s policy (BOP) is essential for peace of mind and ultimately their own survival should the worst happen.
What Is Business Interruption Insurance?
Business interruption insurance is designed to help protect you from loss of income should an unprecedented event happen, such as fire or a storm, and you have to close up shop for a period of time. Your main business insurance, however, typically will cover property damage and help to cover the costs of repairing significant damage. That’s why it’s important to differentiate between the two and ensure you have both types of insurance.
It’s also helpful to note that business interruption insurance isn’t usually a standalone policy but included within a business owner’s policy. This type of policy typically bundles multiple types of insurance, including general liability, commercial property, and business interruption insurance, so that you are protected from most areas of risk.
Keep in mind that insurance providers may refer to business interruption insurance in slightly different ways such as “business income insurance.” That’s why you should always check the wording of your policies very carefully and ensure you fully understand which part of it covers business interruption.
What Business Interruption Insurance Covers
Here’s what business interruption insurance typically covers you against and what to keep in mind:
Lost revenue and profits
Insurance companies calculate the compensation required for loss of income based on your business’s historical financial records. They will also consider the needs of different business types, the location of your business, and the number of employees.
Fixed operating expenses
Your fixed operating expenses, such as rent, loan payments, utilities, and other continuing costs, can often be covered by business interruption insurance.
Payroll and employee costs
Even after a natural disaster, you’ll have to continue paying your staff if you want to retain them. Business interruption insurance offers protection for key employee wages and retention during downtime.
Depending on your specific policy, your insurance can also cover you for providing a temporary relocation to conduct business and training costs on new replacement equipment, if needed.
Industry-Specific Coverage Examples
Wondering how business interruption insurance would help your specific type of business? Here’s a few common examples:
Restaurants and bakeries
If you have a catering-related business, such as a restaurant or bakery, your business might be covered against food spoilage, lost reservations, and seasonal business fluctuations.
Hair salons and beauty businesses
Beauty businesses, such as aesthetic clinics and hair salons, can be protected against appointment cancellations, the replacement of specialized equipment, and client retention.
Retail shops
If you’re in the retail industry and have a store, your business can be protected against inventory issues, seasonal sales periods, and customer access problems.
Dental and medical offices
Dentists and those with medical offices could be protected against appointments needing to be rescheduled, the replacement of specialized equipment, and ensuring patient continuity of care.
Common Exclusions and Limitations
Now you know what business interruption insurance covers you for, it’s important to know what it doesn’t.
Typically, you won’t be covered for:
- Pandemic or public health closures
- Floods
- Earthquakes
- Cyber attacks
If you are worried about the impact of any of the above to your business, you will need to speak to your insurance agent to find out how to include this as part of your overall BOP as an additional risk factor.
Protecting Your Business
Unprecedented events impact small businesses in America all year round. While no one ever wants to think the worst, protecting the restaurant, shop, or salon you’ve worked so hard to build can be the difference in whether it survives long term or not. The peace of mind this offers is also invaluable and can give you reassurance that your business is covered against interruptions.
To find out more about how much a BOP could cost, get a quote today.