What Does Business Interruption Insurance Cover?

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What is business interruption insurance?
What is an example of how business interruption insurance works?
What is the easiest way to think of business interruption insurance?
Do I have to buy business income insurance?
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What is business interruption insurance?

I already know what general liability insurance is and what that covers for my business. I’m in the process of looking up other potential policies and I came across business income insurance. Could you explain what that is and what it covers?

Before we get into any specifics, know that business income insurance was formerly known as business interruption insurance. So if you see either term, it’s the same thing. 

Now the insurance teacher in me is going to give you a definition and then explain that definition. Business interruption insurance is insurance that pays for the loss of income of a business, including its continuing expenses (like payroll,) when business operations are suspended because of the destruction or loss of the insured’s property due to a covered cause of loss. The short way to explain this definition is that if there’s a covered loss and you have to shut down for some time, business income insurance will pay expenses in the meantime, including payroll.

Covered losses are whatever losses are included in your property coverage. This could potentially cover everything from fire damage to hurricanes or wind storms. Remember, covered losses will be specific to your policy, so be sure to check what’s covered and what isn’t. 

What is an example of how business interruption insurance works?

I think I understand what business income insurance is from that definition, but could you give me an example just to make sure?

Let’s say that you own a hardware store and there’s a fire. The store burns to the ground and you have to rebuild. Obviously, this is a pretty big fire, and your store is going to be closed for several months. Bit it doesn’t matter that the business is closed: Bills are still coming in and employees still expect to be paid, at least if you want them to stay around.

This is exactly why you want business income insurance. While you’re rebuilding, business income insurance pays for your bills and employee payroll. This keeps your business in operation when the costs of keeping things going would otherwise put you out of business. 

What is the easiest way to think of business interruption insurance?

Are there any other helpful ways to think about business income insurance? 

My favorite metaphor for business income insurance is thinking of it as being like health insurance vs. disability insurance.

Health insurance pays to fix you by paying for things like the doctor or hospital, but it doesn’t keep you financially afloat. Disability insurance, on the other hand, pays the bills, like the mortgage, rent, a car loan, or electric bill, to keep you afloat.

Property insurance is like health insurance in this scenario: It fixes what’s broken when there’s a covered loss. Then business income insurance is like disability insurance: It keeps you afloat after something’s been broken and isn’t yet fixed.

If you’re still a bit unclear on what business income insurance covers or doesn’t cover, a TrustedChoice.com independent insurance agent can help.

Do I have to buy business interruption insurance?

Is business income insurance required if I’m running a business?

If you’ve been looking through our other business Q&A topics, you already know that some types of business insurance are legally required and others may be required by contract. Business income insurance is not one of them in either scenario.

Business income insurance is optional and it really only serves to protect you. After all, if you suffer a covered loss and don’t have business income insurance, you may be forced to close up shop because you can’t afford the bills during the time it takes to rebuild the business. 

If you aren’t sure if business income insurance is worth the cost, the best thing you can do is call your independent agent to get a better idea of whether it makes sense for your business.

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