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What Businesses Can Benefit from Having Business Interruption Insurance?
There are many businesses that may want business interruption insurance, and the list of businesses that can benefit from this coverage isn’t limited to any one industry or single type of company. Just a few types of business that might consider a business income policy include:
- Manufacturers, which might have to pay assembling costs upfront after a disaster before they can sell products again
- Hotels, which might need to pay taxes and salaries while rebuilding after a disaster
- Restaurants, which might need to pay rent, supply costs and salaries while waiting for business to pick back up after a disaster
In general, any business that would struggle to pay its bills if it experienced a sustained revenue loss may need business income insurance.
Do Businesses That Have Significant Savings Need Business Interruption Insurance?
Businesses that have sizeable cash reserves in savings may be tempted to forgo business interruption insurance so they can save on annual premiums. Self-insuring against revenue decreases has a disadvantage, though.
Self-insuring require businesses to maintain high levels of savings. While it’s a good idea to have some money in savings, having to keep too much in savings can prevent a business from taking advantage of potential opportunities that would lead to growth.
With a business income policy, businesses can free up some of the capital that they would otherwise want to keep in savings. The freed money can then be used to invest in facility upgrades, staff training, new employees or other strategic moves that will help the business grow.
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What Perils Do Business Interruption Policies Offer Coverage For?
Generally speaking, the perils that business interruption policies offer coverage for are similar to those that commercial property insurance policies cover. The exact coverages of any one policy can vary, but most policies offer coverage for perils like fires, thefts and windstorms.
There is one risk that business interruption policies don’t cover -- poor decisions. Errors in decision making and competition from other companies isn’t covered, for policies’ coverages are limited to uncontrollable and unexpected disasters. That doesn’t include industry changes or decisions that impact profitability.
Are There Different Kinds of Business Interruption Policies?
Insurers offer a few different kinds of business interruption policies. Some common options include:
- Standard business interruption policies, which may offer benefits until a business resumes operations
- Extended business interruption policies, which may offer benefits for a specific amount of time (e.g. 30 to 90 days) after a business resumes operations
- Contingent business interruption policies, which may offer benefits if revenue suffers as a result of loss, damage, or destruction of property owned by others, including direct suppliers of goods or services to the insured and/or direct receivers of goods or servies manufactured or provided by the insured (see below section for more details)
(Each of these types of policies usually has limits on how long it will provide benefits.)
What to Know About Contingent Business Interruption (CBI) Coverage
As stated in the previous section, contingent business interruption coverage is designed to cover situations where an insured loses business income as a result of loss, damage, or destruction of property owned by direct suppliers, or, in the instance where there is loss, damage, or destruction of property of the direct receiver of goods or services from the insured.
It is important to note that both the supplier and the receiver in these scenarios have to be "direct" suppliers or receivers. This is crucial in understanding the policy because in a multi-tiered supply chain, the loss of business income due to loss, damage, or destruction of property owned by others may occur to a business that is in the chain, but not directly to the insured. Therefore, there may be a gap in coverage for the insured.
How Can Businesses Get Business Interruption Insurance?
To get help finding insurance coverage for potential revenue decreases, businesses should talk with an independent insurance agent who has expertise in business interruption insurance. A knowledgeable agent will have the expertise needed to make informed coverage recommendations and make sure an insurer’s policy provides all the protection a business needs. Being independent, they’ll be free to recommend the best policy no matter what insurer offers that policy.
