What is Business Interruption Insurance?
Also called loss of income insurance, business interruption insurance is a type of cover usually included in your commercial insurance policy. It covers your business’ income during instances where you cannot carry out business as usual.
The aim of loss of income insurance is to keep your business in the same trading position that it was prior to the unexpected event, so you are no worse off financially than you would have been.
What is Covered?
Business interruption insurance covers you if your premises are damaged or if essential equipment breaks down due to an insured event. For example, if your business premises suffered from a fire or flooding.
This type of cover can apply to any type of workplace, from factories to market stalls, and even home offices.
Who Should Have Business Interruption Insurance?
It’s not necessary for every business to have business interruption coverage, however, we do strongly recommend that business owners consider it as a part of your commercial insurance package.
It is particularly recommended for manufacturers as so many of these types of businesses rely on equipment that can end up damaged from a claim through no fault of the business owner.
Many business owners overlook business interruption insurance as they believe other types of commercial insurance such as buildings and contents insurance will cover everything. While these other policies do cover your initial damage, they have no obligation to cover you for loss of income while your business is not operational. That’s where business interruption insurance comes in.
Whether or not you should consider business interruption insurance depends on whether or not you believe your business could bounce back quickly in the event of something like a fire or flood. If you have a loyal customer base, could set up your equipment quickly, and recover from loss of stock within a short time, you may not need it. However, if any of these things are likely to cost you significant profits in the case of an emergency, loss of income insurance is something to consider.
How to Calculate Your Business Interruption Sum Insurance Indemnity Period
All business interruption coverage comes with an indemnity period – a maximum time period that your financial losses will be covered. Once your indemnity period is over, your insurer will halt any payments for loss of income. Usually, indemnity periods are for a minimum of 12 months, but it’s vital to get your indemnity period right so you won’t lose out on your policy.
How you calculate your indemnity period will depend on a range of elements. Firstly, you should take into account your business continuity plan, disaster recovery plan, and risk assessment. How likely is it that an unexpected event happen? What is your plan should these events occur? How will you continue to trade if they occur - or if you aren’t able to - how long will it take to recoup?
You should also consider the following questions:
- How long would it take to clear, remove hazards, and rebuild your physical premises in the case of a disaster such as fire or flood?
- Would this need to include planning permission or specialists such as architects?
- How quickly could you find alternative accommodation and set up business there?
- How long would it take to replace equipment or machinery that you need to be able to trade?
- Could you subcontract any work so as to not lose loyal customers?
- Are there any health and safety inquiries? If so, you will likely need to halt operating until these are concluded or resolved.
- How long would you need to hire or train staff?
Alan & Thomas Chartered Insurance Brokers
When it comes to protecting your business, there are so many elements to consider that it can seem overwhelming. That’s why getting the right commercial insurance broker can save you time, effort, and cost. At Alan & Thomas, we are chartered insurance brokers that specialise in finding comprehensive cover that is tailored to your business. To get more information about how we can help protect your business and to get a quote, get in touch with your local branch or call 01202 754 900 to speak to one of our experts.