This blog will outline what business interruption insurance is, what cover it provides, how it works and how businesses can calculate whether they need the cover or not.
Running a business can be stressful at the best of times. It’s a complete rollercoaster. When things are going well and profits are high, nothing beats the feeling. However, during your lows, you can feel the weight of the world on your shoulders. But what if something unforeseeable happens to your business? What if something out your control causes interruption to your business? Thankfully this has been considered by insurers. Business interruption insurance was designed to help businesses get back on their feet when the most unforeseen circumstances occur.
1. What is business interruption insurance?
Business interruption insurance is a policy that protects businesses from huge financial losses that can occur as a result of a claim against their property or physical assets. Whilst buildings insurance will cover you against physical damage to a property, business interruption insurance covers the income a business would have made had the incident not happened. For businesses devastated by fires, floods, weather damage and other similar perils, this policy often means the difference to between ensuring long-term viability and going bust.
2. What does business interruption insurance cover?
By far, the two most common business interruption claims are fires and floods. These often cause the biggest effect on a business’s ability to remain profitable. However, business interruption insurance covers many more circumstances. These range from burst water pipes, broken heating and boilers, utility service issues such as internet connections, storms, theft and vandalism.
3. Who needs business interruption insurance?
There’s a wide range of factors businesses must consider when calculating their need for business interruption insurance. Ultimately, it boils down to a business’s ability to continue to trade, and get back on its feet when one of the unforeseen circumstances occurs to their property or physical assets.
For example, a sole trader who operates from an office but only needs his laptop and internet connection to trade; he could probably quite easily operate from another remote location in the event of a flood. However, a large wholesaler business stocking 100’s of pallets of white goods would be far less able to simply sidestep in the event of a flood.
Ultimately, business interruption insurance is not a legal requirement. As a business owner, you have to assess the risk a large scale disaster would have on your business. If it would have little effect, you are probably fine to trade without business interruption insurance. If it would have a detrimental effect on your business, then you should really consider putting the cover in place.
4. What is the business interruption indemnity period?
The business interruption indemnity period is the period during which a business has their losses compensated by the insurance company, under the terms of their policy. The maximum indemnity period is the period of time that insurance will cover these losses, starting from the date of the claim. The maximum indemnity period is usually 12, 24, or 36 months.
We always recommend you consider the minimum period of time it would take your business to get back on its feet, considering the most likely peril e.g. fire. Work out how long it would reasonably take your business to overcome the situation, considering repairs to buildings, recovering stock, dealing with suppliers etc, and choose an indemnity that offers you flexibility. It’s better to overcompensate and give yourself some breathing space.
5. What is the material damage proviso?
In a nutshell, the material damage proviso is a condition within the business interruption policy that seeks to minimise the timeframe that a business will be interrupted. Each policy has a material damage proviso.
The proviso makes sure that the policyholder has cover in place to protect against damages to the property in question. This proviso, therefore, makes sure that the interrupted business has funds available to fix damages quickly. This reduces the time it will take for the business to trade at full capacity, thus lowering the time the insurer will have to pay out to compensate the costs.
Get a Business Interruption quote
Our team at 1st Choice Insurance believes that everyone deserves great value with their business interruption policies, which is why we offer great value for money with incredible savings. Call us today on 01743 770 500 or complete our Get a Quote Form.