The small business safety net – Why you need business interruption coverage

Business interruption insurance provides vital protection for small companies when events beyond their control halt operations. This coverage replaces income lost when disasters temporarily close or restrict commercial activities. While concepts seem straightforward, policies have nuances owners must understand to secure proper safeguards.

These policies help update revenues stopping after covered incidents like fires, storms, or vandalism. Over 40% of small firms never reopen post-crisis without adequate coverage. Insurers pay for ongoing expenses, payroll, repairs, and income shortages until reopening. 

Standard policies assist with earnings losses and operating costs stemming from covered situations. For example, destruction of company property due to explosions, theft, equipment issues, utility disruptions or civil authority edicts related to adjacent disasters. But each risk has specific policy triggers, limits and exclusions.

Insurance proceeds help replace lost profits, pay fixed costs like rent when closed, fund temporary locations, and retain employees during shutdowns or restrictions. However, insurers cap payout amounts and time frames. Firms must carefully evaluate their particular risks and income streams to select adequate limits when buying coverage. 

While covering a wide range of hazards, some key sources of loss remain excluded like intentional closures, violating laws, deterioration, ordinarily wear and most off-site utility interruptions. Also, policies contain waiting periods before paying claims to account for short disruptions and maintain policyholder reserves for minor incidents.

Pricing reflects revenue size, selected limits, risk factors like backup systems and supply chain diversity and geographic elements including flood zones. Despite the critical protection, annual premiums historically range only 2-5% of affiliated property insurance costs. An experienced broker can secure tailored coverage with an optimal balance of risk transfer and affordability.