Does Your Business Need Business Interruption Insurance?

Business Interruption Insurance (BII) is an often overlooked insurance coverage.  If your business is forced to close, your risk is not limited to temporary loss of income—which that alone can be devastating.  You also run the risk of losing customers who turn elsewhere for their product or service needs.  You may have difficulty paying key suppliers during an income interruption, causing further long-term loss as those suppliers sever their business relationship with your company.

Business Interruption Insurance is designed to protect businesses from these types of risk.  BII is often part of packaged commercial insurance policies, or is purchased in conjunction with business property insurance.  One reason for this is that the perils, or causes of loss, are usually the same for property insurance as for Business Interruption Insurance.  A variation in BII designed for those enterprises that depend heavily on outside suppliers is called Contingent Business Interruption Insurance.  Loss of business income due to the inability of a supplier to provide goods or services can be insured in many circumstances.

How much BII your business needs will depend on several factors, such as how easily you could continue operations at a temporary location, and how long your business might be sidelined.  You will also need to consider what income is being insured.  It could be average daily, weekly, or monthly income; income for the most recent accounting period; peak income, or some hybrid.

BII usually requires a 48-hour waiting period before kicking in, and indemnity will be based on the financial records of your business.  Therefore, it goes without saying that you will need to keep your records up-to-date and in a safe place.