How would business interruption insurance coverage be useful?

Business interruption insurance covers a company's operating expenses due to an issue covered by the policy. The risks covered by business interruption insurance are often theft, wind, fire, lightning and falling objects. You'll need to check your policy to determine what may be covered. Business interruption insurance policies usually cover lost income, rent value, or both.

In general, business interruption insurance policies require direct physical loss or property damage caused by a covered hazard (e.g., fire, water damage, etc.). Most commercial policies exclude losses caused by virus contamination and similar hazards, such as pandemics. Property damage is covered by commercial property insurance, which is included in a business owner's policy. Business interruption insurance covers the cost of payroll as long as your business doesn't generate revenue.

Business interruption insurance provides protection when a property insurance claim forces your business to shut down temporarily. Business interruption insurance compensates the company for the revenues it lost while recovering from damages. Neil Alldredge, senior vice president for corporate affairs at the National Mutual Insurance Association, says: “Before the pandemic, most business interruption policies did not cover losses related to infectious diseases or the pandemic, and while there are thousands of pending lawsuits on the issue of coverage, most believe that the language of the policy was clear. While you should check your policy, in general, coverage resulting from the actions of a civil authority also requires physical damage to the insured facility caused by a covered hazard.

In order to inform state policy makers working to protect small businesses, the Department of Insurance is requiring insurance companies to provide data on the number and type of small businesses with business interruption coverage and the magnitude of covered and uninsured business losses. For example, an additional clause on communicable diseases extends coverage to closures due to infectious diseases, such as COVID-19. In most cases, there is a waiting period of 48 to 72 hours for the business interruption policy to take effect after a loss covered by insurance. Therefore, if your company suffered damage on April 1, you will be entitled to business interruption benefits until April 1 of the following year. The store is closing while it lasts, but the time isn't enough for you to collect your business interruption policy.

Business interruption insurance policies generally require direct physical loss or damage to property as a result of a covered hazard (e.g.), but your business can suffer indirectly if a business you depend on closes temporarily or permanently.

Jenny Kizzia
Jenny Kizzia

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