The In’s and Out’s of Business Interruption Insurance

COVID-19 Update: 

•       Losses due to COVID-19 often do not trigger coverage
•       Business interruption insurance typically requires physical damage or loss to property
•       A government-mandated closure or workforce shortage may not trigger coverage
•       Losses caused by a virus are routinely excluded
•       Each claim is evaluated independently.  If you have a potential claim, you should submit it promptly and contact your broker with questions.

Business Interruption Insurance:  What does it cover?

Business interruption insurance (otherwise known as business income coverage) is typically part of your business-owners insurance policy. It compensates your business for lost revenue and other expenses when you can’t operate due to a covered loss – often things like damage to business property, fire, wind, falling object, or lightning.  Usually, coverage is tied to physical property damage.

What expenses can business interruption insurance cover?

–        Lost Revenue

–        Commercial rent

–        Relocation costs

–        Salaries/wages

–        Taxes

–        Loan payments

How much business interruption coverage do I need?

It can be difficult to determine how much business interruption insurance you need.  It’s a good idea to think about how long your reserves will last in the event you are forced to suspend operations.  Remember, every insurance policy has limits and there are often separate limits for business interruption coverage. If your expenses exceed those limits, you’ll have to pay out of pocket. 

This coverage can help keep your business going while you make necessary repairs, relocate your operations, and get your operations back on track after a covered loss. 

What does Business Interruption Insurance Not Cover?

–        Short closures

o   Most policies have a “waiting period” of 3 days before coverage kicks in.  If your operations cease for 3 days or less, coverage usually does not apply

–        When you can still earn income

o   If your business can still operate in some capacity, business interruption insurance often will not apply.  For example, if the backroom of your shop is damaged by fire but you can still operate while making repairs, the insurance may not compensate you for lost income.

–        Excluded losses

o   All insurance policies have exclusions. Often, these include:

• Broken items
• Flood or earthquake damage
• Undocumented income
• Utilities
• Any other loss excluded by the policy

Business Interruption Insurance and the Corona Virus

In many cases, losses due to the novel corona virus (Covid-19) are not covered.  Business income coverage usually kicks in when business property is damaged by a covered loss.  Most insurance policies have language that requires “direct physical loss or damage to property.”  Losses due to a virus are often excluded, as are losses that do not involve physical damage to property.

When business slows because of illness, shortage or workers, or a pandemic, the coverage usually does not apply.

However, each loss is evaluated individually and the insurance industry’s response to COVID-19 is constantly developing.  If you have a loss you are encouraged to report it as soon as possible and contact your agent with any questions.