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business interruption insurance

What Is Business Interruption Insurance, And Should You Have It?

A fire breaks out at a neighboring business only to spread and damage your storefront. A hurricane makes an unexpected turn inland, and the high-speed winds and debris wreck part of your office.

Sure, commercial property insurance likely will cover the physical damage done to your company. But what about the business you’re going to lose while you’re trying to pick up the pieces?

That’s where business interruption insurance comes in.

A Look at Business Interruption Insurance

Business interruption insurance, or business income insurance, covers various financial shortfalls you’re bound to experience if your business is forced to close temporarily following certain types of disaster. It doesn’t actually cover, say, replacing store windows or damaged equipment — that’s what commercial property insurance is for — but instead, it helps you recoup on opportunities lost.

Importantly, business interruption insurance also may cover other events that disturb your normal operations. Let’s say your company’s headquarters weren’t actually damaged in a natural disaster, but the area immediately around it was, and a government authority temporarily prohibits access to your building. It’s possible your plan will cover that.

But what, exactly, does business interruption insurance take care of in these instances?

  • Profits: Your plan will cover the profits you likely would have collected during the time your business was closed.
  • Taxes: While you’re unlikely to get relief from taxes because of a disaster, business interruption insurance can make sure those still get paid.
  • Loan payments: The same goes here. You might be able to get temporary relief by talking to your lenders. But these policies ensure you don’t need to take such a step, covering those payments for you.
  • Mortgage/rent: Similarly, you might be able to get some leniency from your landlord. But business interruption insurance policies will address these payments.
  • Payroll: Not only will policies take care of you — they’ll take care of your employees, too.
  • Relocation costs: You might need to set up shop elsewhere because keeping your business closed for a prolonged amount of time simply isn’t an option. Business interruption will tackle related costs.

A Great Solution, But Know Its Limits

Business interruption insurance seemingly covers everything, but it doesn’t actually cover everything.

As mentioned before, this isn’t a physical-damage policy, so don’t mistake this for a policy that will pay for equipment replacements and structural repairs. Also, not every kind of disaster is covered — floods and earthquakes are often excluded from typical properties. And as many small businesses have found out, COVID-19 has been the subject of massive confusion and contention between companies and their insurers.

Nonetheless, this is a backstop companies simply can’t live without. These policies complement other traditional types of insurance and help ensure that a disaster isn’t the final chapter in your small business’s story.

Just keep McManamon & Co. in mind should you ever need to cash in on one of these policies. We provide a number of services to small and midsize businesses, including economic damages consulting. We offer litigation support for analyses of lost profits, lost value and out-of-pocket costs in matters involving contract and shareholder disputes, business interruption and more.

Like most other types of insurance, we hope you have business interruption insurance … but never need to use it. However, if you do, don’t hesitate to get in touch. Call us at 440.892.8900 or contact us online today.

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