Lifecycle of a Business Interruption Insurance Claim

Coffee shop is closed

If your business is ever closed while you rebuild after a fire or other disaster, you're going to lose money. That's where business interruption insurance comes in.

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Business Interruption Insurance in Action: A Restaurant Story

You own a restaurant. Your location is in the heart of the office district, and business is booming. But a kitchen fire destroys your building.  So you rebuild.

There's just one problem: Six months into the rebuild, you go broke.

Why? Your building and personal property insurance will replace your physical assets, but they don’t pay a nickel toward lost profits! 

You should have bought business interruption insurance.

What Is Business Interruption Insurance?

"Business interruption” or “business income” insurance pays profits lost under any of the policy provisions. This means you can't file a claim for making bad business decisions or for the general failure of the business.

Covered losses are typically the same as those in your building policy, such as:

  • Fire
  • Theft
  • Wind storm

How Does Business Interruption Insurance Work?

Making a business interruption insurance claim is fairly straightforward:

  1. Estimation of lost profit: Your insurance carrier will reach out for documentation of lost profit. Some estimations are expected, but keep good records. The more stable your past revenue, the better/more accurate the estimate will be.
  2. Valuation of the claim : You can't slap a number on your profits and expect insurance to cough up that amount. After all, you won't be paying for a lot of overhead, like janitorial and utility expenses. If you run a restaurant, you aren't paying for food. This all matters for valuation of your claim.
  3. Payment of the claim: You get the money, you don't go under while you're temporarily closed. Easy as pie.

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What You'll Get Paid 

Business interruption insurance doesn’t look at what your business put in your pocket. Instead, it looks at what the covered loss took out - any profit, plus continuing expenses. 

Insurance companies get that some bills keep coming. Insurance, advertising, payroll and other types of overhead will still have to be paid, even if the total is less while you're closed.

Payroll is a special expense worth noting. It might not be reasonable to keep every employee fully compensated if the business is going to be shut down for a long time. Keep this in mind when you're making a claim.

The Bottom Line

Business owners overlook business interruption insurance all too often. To customize this valuable coverage to your unique needs, contact your Trusted Choice® insurance professional about business income coverage, and get true peace of mind!

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