Business interruption insurance is one of those items that you might consider a luxury for your small business, especially if finances are tight. Yet it's those businesses that are trying to contain expenses who often need it the most.
Small Business Interruption Insurance
mall business interruption insurance is designed to cover any income loss due to property damage. The inability to work at your business site is one of the triggers that activates this type of policy. This is a separate policy than a policy that covers property damage, as insurance policies that cover property damage do not generally cover loss of income, only the cost of property itself.
One type of interruption insurance is contingent business interruption. This would cover any losses that you might have if a major supplier incurs property damage that renders it unable to supply you with product, or if a major customer is unable to accept products from you because of property damage to their facility. This type of insurance might benefit a company that only has a few suppliers or only has a few customers. If your manufacturing business relies on raw materials that are only available through a handful of sources or that come from a specific region, it's worth looking into this coverage.
Another type of interruption insurance covers service interruptions from off-premises power suppliers. This type of small business insurance would cover you if, for example, you own a restaurant and your food spoils because weather or line failures cut off your electricity.
What's Covered?
When you're looking at an interruption insurance policy, be sure you understand what the policy excludes as well as what it covers. Don't forget to read all of the fine print. Calculate the costs of any additional coverage that you might need versus the risks involved before you make a decision.
In addition, consider the waiting period that must elapse before your policy kicks in. If, for example, your waiting period is five days, you will not be reimbursed for any income lost during that five-day period.
Another consideration is the length of time that the policy will last. For example, you may experience losses of income for several months after the property damage occurs. If your policy is only written to cover say, a week, you will only get a week's loss of income returned to you.
Exceptions may also exist for certain types of damage. If your business is located in a flood-prone area, be sure the policy will cover flood damage. Also be sure to consider the effects that damage to nearby roads, bridges, shipping facilities or rail lines might have on your business.
Far from being a luxury, business interruption insurance can help to keep your business alive when disaster strikes. Remember that you'll have no income while you're rebuilding, and plan ahead to make sure that your capital needs will be met.
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