Fires, earthquakes, floods, vandalism – these are all scenarios that no one wishes for, but can inevitably happen and affect your business at any time. In events like these, if your business is covered by property insurance, it will compensate to some extent for the physical damage that has been caused to your business assets. However, in such scenarios, you might suffer beyond just losing some valuable assets. Like for instance, you may find it hard or impossible to function the same as you did before and run all the operations and in turn make a profit. This is where business interruption insurance enters the picture.
In case you haven’t heard of it before, you might be asking yourself what is business interruption insurance? Well, it’s a policy that covers any lost income in case your company must close down the physical building where it’s located due to an event that interrupts the daily operations. It aims at restoring your company to the same financial position as it was before the unexpected scenario occurred (as if the loss had not happened) until you get your business back on track.
Why It’s Important?
Given the rising number of natural disasters in Australia, it’s very important for many business to consider this type of insurance. This is due to the fact that if the physical location from where you run your business is closed for some time for repairs, you still have expenses even without the business operating. Apart from losing revenue each day as customers might start going to your competitors, you might also have some mandatory, monthly fixed charges you need to pay. Rent may still be enforced depending on your lease agreement, or fixed electricity fee regardless of the amount of electricity you use. But how are you going to manage to do so without even operating and making a profit? As already said, by relying on a business interruption insurance you will be able to avoid losing money during a slowdown or shutdown. This way, you will be still able to continue paying your employees and cover operating expenses until you’re back in business.
How Much Does It Cost?
The cost of covering your business depends mostly on the nature and the location of your business. And while the pricing varies, on average you can expect to pay between $500 and $1500 per year. For instance, a large business located in an area that’s likely to be struck by a tornado may need a policy that costs much more than a small business located in a relatively safe area. Another thing that insurers have in mind is how easy it would be to relocate your business elsewhere. For example, while a real estate company could work from a temporary office location, a restaurant wouldn’t be able to easily resume its operations off-site.
Who Requires It?
If you happen to have a brick-and-mortar business, then you are in need of a business interruption insurance. This is due to the fact that you depend mostly on your store and all the physical assets inside it, be it a restaurant, hair salon or a furniture showroom. Home-based and online businesses, on the other hand, have lesser need for business interruption insurance. However, it may still come handy, for instance, if a supplier in the supply chain is affected by an accident. Also, if your business is located in an area that it’s likely to be affected by some kind of a natural disaster then what is business interruption insurance going to offer is a peace of mind and coverage when the disaster occurs.
How Long Will It Last?
When it comes to how much time the business interruption payments will last, it’s all in your hands. Some important things to consider when choosing an appropriate benefit period is how long it will take for the new stock to arrive, how long do you think it will take to get your customers back and how long it will take to fit out a new location. In general, the coverage period starts a few days after the accident has happened and lasts up to that moment when the location becomes operable again.
On a final note, calculating the correct amount can be complex, while properly understanding the insurance terminology and the nitty-gritty of what is business interruption insurance can be tricky. This is why it’s best to turn to a professional insurance broker to assist you with this matter.
