Business interruption insurance, also called business income insurance, reimburses small business owners for their operating expenses and lost income after a major disaster. Business interruption insurance typically doesn’t cover damage from floods, earthquakes or pandemics. It is often sold as part of a business owner policy, or BOP.
Business interruption insurance coverage often includes a restoration period, which is how long the policy will pay for lost income and additional expenses to get things up and running again.
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Restoration periods are typically 30 days long, but carriers may offer options for longer periods.
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The restoration period might not start until 48 or 72 hours after the event occurs. However, insurers usually reimburse for repairs you might need to make right away (like to board up windows), so be sure to document the damage and keep the receipts.
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The policy typically covers the entire restoration period, even if the policy expires before then.
What business interruption insurance typically covers
Business interruption insurance typically pays for:
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Lost business income.
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Rent, mortgage or lease payments.
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Loan payments.
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Relocation costs to move to a temporary or new location.
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Extra expenses associated with renting another space.
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Costs to train employees to learn how to use new equipment.
What business interruption insurance does not cover
Business interruption insurance has some exclusions. It typically doesn’t cover losses from:
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Earthquakes.
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Utility outages.
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Pandemics or disease outbreaks.
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Income that wasn’t in your business’s financial records.
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Property damage (commercial property insurance policies typically cover that instead).
How much does business interruption insurance cost?
Business interruption costs vary by industry, location, number of employees and how much coverage you want. If you’re in an area with a higher risk of certain natural disasters, your cost might be higher.
To determine how much coverage you might want, think about your revenue forecasts and how long it might take you to get your business back up after certain types of events, as well as whether your current work area is well protected and how hard it would be to find a temporary location.
There are a number of add-ons you can buy for business interruption insurance coverage. Here are some examples:
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Dependent properties (also called contingent business interruption insurance): Compensates you if damage to someone else’s business hurts your business (such as a fire at a supplier, a big buyer, a manufacturer, etc.)
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Extra expense insurance: Compensates you for costs beyond normal day-to-day operating expenses, such as having to hire temp workers or pay overtime.
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Civil authority: Compensates you when the government blocks off access to your business because of damage to something nearby.
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Utility services: Compensates you when loss of utility service causes you to suspend operations.
Business interruption insurance coverage is often bundled with property insurance, liability insurance or even data breach insurance; these bundles are often called business owner policies, or BOPs, and may be a way to save money (rather than purchasing each policy separately). Companies with 100 employees or fewer and revenues of up to about $5 million may be especially suited for these bundled business owner policies, though businesses in some industries (such as the restaurant industry) might not be eligible for bundled policies due to specific industry risks. In those cases, buying policies separately may be a better option.
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