Fall may be in the air, but the harsh hand of winter is right around the corner. After last year’s Polar Vortex turned much of the U.S. into a snow globe, many businesses were left out in the cold and unable to operate.
Whether it's due to severe winter weather or because of other natural disasters, your business could lose a great deal of money if it's forced to shut down temporarily. That’s where business interruption insurance coverage comes in. What exactly is business interruption insurance?
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To put it simply, business interruption insurance can compensate you if your business is forced to shut down due to an unexpected disaster, such as a fire, tornado or even extreme winter weather. You may be thinking, “Doesn’t my standard business insurance policy protect me in the event of a disaster?” Yes and no.
What standard coverage does and doesn't cover
A standard business policy typically only covers loss or damage to tangible items – your computer, other equipment, your inventory, and your physical building. However, it doesn’t cover lost income if your business can’t operate.
Business interruption insurance can cover the revenue you would have earned, based on your financial records, had the disaster not occurred. This type of policy also covers operating expenses, such as electricity, that continue to mount even though business activities have come to a temporary halt.
Business interruption coverage is often overlooked. In fact, about a third of small businesses have it, according to the National Association of Insurance Commissioners. However, with the growing number of natural disasters combined with the economic climate in the U.S., it’s a coverage that many businesses can’t afford to go without. According to the Institute for Business and Home Safety, at least 25% of businesses that close following events such as floods, hurricanes, wildfires and other disasters do not reopen.
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Gambling with your company's future
Cost is often the reason many businesses pass on interruption coverage: policy prices can range from $750 all the way to $10,000. How do insurers calculate the price of a policy? One of the major factors is the amount of risk your business faces. Let’s say your business is located in Tulsa, OK. The risk of being hit by a tornado is greater than if your business is in Boise, ID. That could make your policy more expensive.
Sometimes, the type of business you own can also play a part. For example, a real estate agency can relocate agents or just allow them to work remotely with relative ease. Whereas, a restaurant would be more burdened and would need a different coverage plan. Every business has different needs, which mean it could require different amounts of coverage.
Other factors should be considered when setting your business interruption coverage. To figure out your ideal coverage amount, you should envision how your business would be affected by a catastrophe. Ask yourself the following questions before settling on a policy.
- How long would it take you to get your business up and running after a serious event?
- How well protected is your building?
- Is there are working sprinkler system?
It’s also important to keep in mind that most policies have a 48-hour waiting period before business interruption coverage kicks in.
Like standard business insurance, it’s best to shop around with different providers for the best price. You may even be able to get a discount with your standard business insurance provider by adding business interruption coverage. Remember, it’s better to be ready in case disaster strikes than to be wishing you had coverage after the fact.