Business Continuation Insurance: What You Need to Know to Keep Your Business Running

Business continuation insurance is a type of insurance that helps ensure your business stays afloat in the event of unexpected interruptions or disasters.

This insurance can cover a wide range of losses, including property damage, business interruption, and even the loss of key employees.

Your business can be severely impacted by a disaster, with average business interruption losses exceeding $50,000 per day.

The key to keeping your business running is having a solid plan in place, and business continuation insurance can help you prepare for the unexpected.

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Business continuation insurance is a type of insurance coverage designed to protect your business in case you're forced to shut down for a period of time due to disaster.

It's also known as business income insurance, business income coverage, or business income and extra expense insurance.

Business continuation insurance can be purchased as a standalone policy or as part of a packaged policy, such as a business owner's policy or multiple peril policy.

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This type of insurance becomes effective when a covered event occurs, and you can file a claim with your insurance company to provide evidence of the damages incurred.

Your insurer will review your claim to determine if the event is covered under your current business continuation coverage.

Business continuation insurance is not sold as a separate policy but is often added to a property/casualty policy or included in a comprehensive package policy as an add-on endorsement or rider.

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Business continuation insurance provides financial protection to businesses that experience disruptions, allowing them to continue operating and minimizing losses. This type of insurance is often added as a rider to an existing policy.

There are several types of coverage available, each designed to protect against different types of financial losses. Business income coverage, for example, helps replace lost income and pay ongoing expenses if a business is forced to close temporarily due to a covered loss.

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Extra expense coverage assists in covering the additional costs a company may incur to minimize or avoid a shutdown. This can include renting temporary office space, paying non-exempt staff overtime, or covering the cost of temporary transportation or relocation.

Contingent business interruption coverage protects a company from losses caused by a disruption in the operations of a supplier or other business partner. This can include compensation for lost income if a supplier is unable to deliver goods due to a covered event.

Civil authority coverage protects a business from damages caused by government-mandated closures or other limitations that prevent it from operating. This can include reimbursement for lost income due to a mandatory evacuation order or curfew.

Here are some of the key types of business continuation insurance coverage:

Each of these types of coverage can help a business continue operating and minimize losses in the event of a disruption.

Business interruption insurance is coverage that replaces income lost if a business is halted due to direct physical loss or damage, such as that caused by a fire or a natural disaster.

Standard business interruption insurance does not reimburse policy holders if the business is closed due to a pandemic, even some all-risk insurance plans have specific exclusions for losses due to viruses or bacteria.

Business interruption insurance includes several types of coverage, including business income, extra expense, contingent business interruption, or civil authority coverages.

The standard policy period for business interruption coverage is 30 days, but using an endorsement can extend it to 360 days.

Business interruption insurance premiums are tax-deductible as ordinary business expenses.

Here are some key factors that determine the amount payable under a business interruption insurance policy:

Business interruption insurance covers a range of financial losses that can occur when a business is forced to close temporarily or permanently due to a covered event. This can include lost profits, fixed costs, and temporary location expenses.

Lost profits are typically calculated based on prior months' financial statements. Business interruption insurance will reimburse a business for profits that would have been earned had the event not occurred. This can be a significant amount, especially for businesses that rely heavily on revenue.

Fixed costs, such as operating expenses and other incurred costs of doing business, are also covered. These can include rent, utilities, and employee salaries. Business interruption insurance will help a business continue to pay these costs even when it's not generating revenue.

Some policies also cover the costs of moving to and operating from a temporary business location. This can include renting temporary office space, equipment, and other expenses necessary to keep the business running.

In addition to these costs, business interruption insurance may also cover commission and training costs. For example, if a business needs to replace machinery or retrain employees on new equipment, these costs can be reimbursed.

Here are some of the key expenses that business interruption insurance typically covers:

These expenses can be significant, and business interruption insurance can provide much-needed financial support during a difficult time.

Business interruption insurance is a crucial safety net for businesses, but it's essential to understand what's not covered.

Broken items resulting from a covered event or loss, such as glass, are not covered by business interruption insurance. This means that if a window breaks due to a storm, the cost of replacement is not included in your business interruption insurance payout.

Flood or earthquake damage is also not covered by business interruption insurance, as it's typically covered by a separate policy. It's like having a specialized insurance policy for your car, and another one for your home – business interruption insurance is not a catch-all for all types of damage.

Undocumented income that's not listed on your business' financial records is not eligible for reimbursement. This is a good reason to keep accurate and up-to-date financial records, so you can take advantage of the coverage when you need it.

Utilities, such as electricity and water, are not covered by business interruption insurance. This might seem obvious, but it's worth noting so you can plan accordingly.

Here's a quick rundown of what's not covered by business interruption insurance:

Pandemics, viruses, or communicable diseases, such as COVID-19, are also not typically covered by business interruption insurance. This is a significant exclusion, especially during times of global health crises.

Business interruptions that aren't related to a property claim, such as cyberattacks or data breaches, might not be covered by business interruption insurance. However, you can purchase separate coverage for these types of events or add endorsements to your existing policy.

Business interruption insurance doesn't cover pandemics, as viruses don't cause physical damage.

The National Association of Insurance Commissioners found that many insurers have restricted coverage for bacterial and virus outbreaks in recent years.

Some small businesses don't reopen after a disaster, with a 25% failure rate according to FEMA.

Business interruption policies only apply when there's direct physical loss or damage, like a fire, or a nearby business is affected and a civil authority closes all businesses.

Viruses, like COVID-19, leave no visible imprint, unlike physical damage from a fire or broken windows.

Even all-risk business interruption insurance has exclusions, including losses from viruses and communicable diseases.

Some states are considering requiring insurance companies to cover pandemic-related losses, which are normally not included in policies.

Business interruption insurance can cost anywhere from a few hundred to several thousand dollars each year, depending on the specifics of your business and the coverage options you select.

The cost of business interruption insurance varies depending on a number of factors, including the size of your company, the industry in which you operate, and the coverage levels you choose.

Business revenue is a significant factor in determining the cost of business interruption insurance, with higher revenue businesses typically paying more.

Your company's location can also impact the cost of business interruption insurance, with businesses in high-risk areas or with a history of natural disasters paying more.

Coverage limits and deductibles chosen can also affect the cost of business interruption insurance, with higher limits and lower deductibles typically costing more.

A business with a high property value may also pay more for business interruption insurance, as the provider takes on more risk.

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Businesses in high-risk industries may also pay more for business interruption insurance, as the provider takes on more risk.

The risk of disaster(s) in your area can also impact the cost of business interruption insurance, with businesses in high-risk areas paying more.

On average, nationally, business interruption insurance costs around $1,200, but premiums can vary significantly depending on your circumstances.

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Businesses that operate out of a physical location should carry business interruption insurance. Any business that depends on tools or machinery to do its work or sells or manufactures products should also have this coverage.

Industries that rely on business interruption insurance include construction businesses and contractors, as well as businesses that operate in areas prone to natural disasters like tornadoes.

Businesses like contractors, who rely on their equipment and trailer to operate, can benefit from business interruption insurance. A fire that destroys a contractor's trailer, for example, can be devastating, but business interruption insurance can help cover costs like estimated taxes on lost revenue.

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If damage to your building, equipment, or inventory could force your business to close, then business interruption insurance is essential. Any business that operates out of a physical location should carry this coverage.

Industries that rely on business interruption insurance include construction businesses and contractors, as a fire can destroy a trailer and force them to withdraw from bids and miss their revenue goals. This type of policy covers costs such as estimated taxes on revenue made before the fire.

Businesses that depend on tools or machinery to do their work should also consider business interruption insurance. This can include any business that sells or manufactures products.

A tornado can cause significant damage to a business, forcing it to close temporarily. Business interruption insurance can help cover the cost to move to a temporary location as well as a loss of income, loss of profit, and any extra expenses included on the business interruption claims.

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As a retailer, you're already aware of the importance of having a physical store that's welcoming to customers. Business interruption insurance helps cover costs like rental payments when your store is closed for renovations due to unforeseen issues like a leaking roof.

A single leak can lead to mold problems, making it impossible to serve customers. This can result in significant financial losses.

Retailers like electronics stores need business income coverage to stay afloat until the shop reopens. This type of insurance ensures that you can continue to meet your financial obligations even when your store is closed.

The business interruption insurance also covers costs like rental payments on the store, so you can focus on getting back to normal operations as soon as possible.

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Some states are considering requiring insurance companies to cover pandemic-related losses, which normally aren’t included in policies. This could provide an alternative option for small business owners.

Business interruption insurance isn't the only way to protect your business from losses due to COVID-19. Thousands of businesses around the country are reducing activity or closing indefinitely to keep workers and customers safe.

Small business owners can explore other options, such as government assistance programs, to help cover their losses. These programs may provide financial support to businesses affected by the pandemic.

If you're looking for alternative investment options for your business, consider a business owner's policy (BOP) that often includes general liability insurance, commercial property insurance, as well as business interruption insurance.

A BOP can provide comprehensive protection for your business, covering unexpected events that might impact your operations. This can include damage to your property, accidents on the job, or even natural disasters.

Investing in a BOP can give you peace of mind and financial security, allowing you to focus on growing your business.

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General liability insurance is a must-have for small businesses, covering common risks like customer injury and property damage, and helping you qualify for leases and contracts.

Business owner's policies bundle general liability coverage and commercial property insurance at a discount, protecting against common lawsuits and property damage.

Cyber insurance is a vital policy for small businesses, covering the high costs of a data breach or malicious software attack, including customer notification, credit monitoring, and legal fees.

Many cyber insurance policies include business interruption coverage for lost income after a cyberattack, which can be a lifesaver for small businesses.

You'll need either commercial property insurance or a business owner's policy to buy business interruption coverage, so make sure you have the right foundation in place.

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