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6 Things Every Business Interruption Insurance Policy Should Cover

Brian LaBovick working

The recent global pandemic has people and businesses rethinking their insurance policies. In a situation where the COVID-19 pandemic is forcing businesses to close and the government to issue statewide shutdowns,  many business owners are left wondering if they will be able to bounce back once things settle down – and if there’s a way to protect their business in the future. Business interruption insurance can be a valuable tool during times like these. Some organizations like Wimbledon have had protection for years, and it’s paying off for them.

Have you considered business interruption insurance? Before you sign up, make sure the insurance policy covers these six things.

  • Lost Revenue

This is the main reason companies and organizations have business interruption insurance. Natural disasters, fires, or government-mandated shutdowns like we’ve recently experienced are causes for business interruption.

Losing power for a day does not warrant a claim. The policy is meant to prevent businesses from permanently closing due to temporary interruption.

A policy will calculate the prior month’s performance against other variables to provide a suitable monetary compensation package for your business.

For example, a hurricane causes significant damage to your property. Outside of structural damage, you also have flooding inside the building as well.

Your commercial property insurance should cover the repairs; however, the construction is expected to last over a year. The construction will prevent you from conducting business.

The business interruption policy should recoup your lost revenue and profits.

  • Employee Payroll

Many thriving businesses are successful because of the level of talent they have recruited and trained. In order to keep your talented employees, you’ll need to pay them their wages during an interruption.

A standard business interruption policy will cover up to one year of lost employee wages. This could make a world of difference for your employees, especially in such an uncertain time as we are currently experiencing due to the coronavirus.

If your business is closed due to a mandated government shutdown, file a claim so you can pay your managers and workers while the business is closed. Not only will you retain your workforce but you’ll keep your employees from worrying about money.

Another coverage is training. When new equipment is purchased to replace the damaged machines, new training will be required. Your policy should cover the cost of training employees.

Bring your company and hardworking employees peace of mind during an uncertain economic event.

  • Vendor Payments

Even if your business is closed, your vendors that provide services or own equipment and property will still want payment. If a business interruption policy doesn’t cover these payments, you could lose the necessary equipment or buildings when you open.

For business owners who rent or lease, all of your rent payments will be covered until it’s time to continue operations.

A tornado that destroys part of a building or fleet of company-owned vehicles will have payments covered until repairs are completed and business can resume as normal.

  • Business Interruption Insurance and Loans

Like vendor payments, loans are also protected by business interruption insurance. A company or business that has a loan with a bank or lending institution can file a claim due to the closure of a business.

While some lenders may have forgiveness or push payments to a later date, don’t count on such grace.

Know the structure and limits of an insurance policy before thinking you’re covered. Businesses that owe small business loans to financial institutions might be protected. But if a business owes a large capital loan, an insurance policy might not pay.

To be safe, it’s wise to work both ends during a closure. Simultaneously work with your insurance provider and lender to work out a situation that is beneficial for everyone.

Ask for extensions or smaller adjusted payments, or add monthly payments to the end of the loan term. A lending institution would rather receive adjusted payments of money instead of nothing at all.

You can consult with a skilled attorney to help you seek protection and action with creditors and your insurance company.

  • Relocation

Is there a chance for your business to continue at a different location? If your business can move to another location and continue operations, you will be covered for the moving expenses.

Not only will the moving expenses be covered, but your rent may also be paid.

For example, a group of burglars break into an accounting firm and destroy windows, locks, and doors. You can move your accounting firm’s operations to another office at no expense to you while repairs are completed.

  • Tax Obligations

Unless the government forces businesses to shut down, you will still be obligated to pay your taxes. Without operations to bring in money to pay your quarterly taxes, business interruption insurance will save the day.

Many businesses rely on the future business to generate revenue they were going to use to pay taxes. With a closure, you can rest easy knowing the taxes will be paid out by your insurance company. As we’ve seen in the past several months, future revenue is not a guarantee and a business closure can have negative impacts for a long time to come.

Do You Need Business Interruption Insurance?

Knowing if you need the insurance coverage comes down to specific factors. If a flood were to permanently damage important assets or prevent workers from completing tasks, then you would definitely need interruption insurance.

Does your business conduct a lot of remote business? If a flood would barely hinder operations, you may not need more than commercial property insurance coverage.

It’s important to know that most business interruption insurance policies will not pay unless there’s a loss as a result of the interruption. Businesses that can continue operations from home or without certain tangible assets might not need the coverage.

What kind of following does your business have? Some businesses have customers that require constant updates or access. If your business cannot survive a week with an interruption, then you probably need business interruption insurance.

It is best to sit down with your insurance agent and go over the differences in coverage between commercial property and business interruption. If their plans do not cover what you require, ask about other comprehensive plans they might have.

Protect Your Business

The next time there’s a pandemic or natural disaster, feel confident that you won’t lose your business.

Make sure your business interruption insurance policy covers these six items so you can get back to business as soon as possible without problems.

If you need legal representation to help you with your insurance company, contact us today.

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