How to Navigate the Unexpected with Business Interruption Insurance

As a small business owner, your dream is to succeed. You’ve envisioned it. You’ve put your heart and soul into building something amazing, and the feeling of making it happen is like striking gold. But in a world full of unpredictable events, protecting your hard-earned success is just as important as achieving it.

You would do anything to protect the business you’ve built and the milestones you’ve accomplished, right? If you could, you’d build a protective shield around your business to keep out any threats. But when the unexpected happens, business interruption insurance comes in –  like a superhero shield for your small business, ready to swoop in and save the day when disaster strikes.

Let’s break down exactly what business interruption insurance is, why your small business needs it, and how to choose the right policy for you.

What is business interruption insurance?

Imagine this: your business is operating smoothly and as usual. Product output is flowing, employee productivity is high, and revenue is coming in. Life is good. Then out of nowhere, a catastrophic event forces you to close your doors indefinitely.  Panic sets in. What do you do when this happens?

Business interruption insurance is your lifeline in these scary situations. It’s a type of coverage that helps small businesses recover lost income and pay ongoing expenses when unexpected closures happen. Whether it’s added to your property/casualty policy or included in a comprehensive package, this insurance is a must-have for any small business owner who wants peace of mind.

If a disaster were to strike down your business, you’ll be thanking your lucky stars that you invested in this type of coverage!

Common scenarios covered by business interruption insurance

The pandemic has taught us a lot of things, but it certainly showed us how difficult it can be for small businesses to withstand long periods of interruption. While viral outbreaks might not always be directly covered by standard business interruption insurance, there are often options to add separate coverage for these scenarios.

But pandemics aren’t the only disasters that can strike. Significant property damage, natural catastrophes like hurricanes or tornadoes, cyberattacks, and government-mandated closures are just a few of the many reasons businesses might be forced to shut down unexpectedly.

Either way, not having coverage leaves businesses in the dust and they often aren’t able to recover.

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Why small businesses need business interruption insurance

As a small business owner, you know your financial limits. Unlike larger corporations with deep pockets, you might not have the resources to survive extended closures without help. Considering that business interruption is the second biggest risk organizations face today, going without coverage is a lot like playing Russian roulette with your livelihood.

Financial protection against unexpected disruptions

Business interruption insurance is your ironclad backup plan when things go south. It’s there to help cover loss of revenue, mortgage/rent/lease payments, ongoing payroll, relocation costs, and loan payments during a closure. In short, it’s your financial safety net when you need it most.

Here are a few of the common expenses covered by interruption insurance:

  • Loss of revenue that you’d normally make
  • Mortgage, rent and lease payments for your operating space
  • Ongoing payroll for your employees
  • Relocation costs, even for a temporary location
  • Loan payments you need to make during closure

Peace of mind and business continuity

Here’s a scary stat: roughly half of all businesses that suffer major property loss fail to reopen or go under within three years. Unexpected interruptions can feel like having the rug pulled out from under you, leaving you nowhere to turn. But with interruption insurance, you can get back on your feet faster, keep your employees paid, and continue serving your customers without missing a beat.

Unexpected interruptions can feel like having the rug pulled out from under you, leaving you nowhere to turn. But with interruption insurance, you can get back on your feet faster, keep your employees paid, and continue serving your customers without missing a beat.

Speaking of customers, don’t underestimate the impact interruptions can have on those relationships. Delays in operation can erode trust and loyalty, but having insurance helps you get back in the game before those bonds are broken.

Business interruption insurance gets you back on your feet quicker so you can continue doing what you do best—serving your customers!

Choosing the right business interruption insurance policy

So after learning all of this, how in the world do you go about choosing the right insurance policy? There’s a lot to consider here, including your business’s needs and risks, what is and isn’t included in policy coverage, and, of course, pricing. Let’s break it down.

Assessing your business’s specific needs and risks

Do you know where your areas of weakness or vulnerabilities lie in your business? Before you jump into choosing insurance coverage, you should run a risk assessment to highlight any cracks in the ice and identify the things you depend on to keep running.

Consider these factors when running a risk assessment:

  • Do you have a structure that is subject to fires, water damage, or loss of electricity?
  • Do you have mission-critical equipment and machinery that could fail?
  • Are there any gaps in your supply chain that could cause disruptions?
  • Do you live in an area that experiences natural disasters often?

While these are some of the most common risk factors, there are certainly others. Once you’ve taken a good look at your risk factors, ask yourself, “How would these types of interruptions impact my operations?” That will paint a picture of not only what you need in your insurance coverage, but also give you the chance to take proactive measures where you can.

Key factors to consider when selecting a policy

We’ve covered a lot here, but don’t stress. We’re still here to guide you in the right direction when shopping for an insurance policy. 

Here’s the kicker with insurance: almost every policy includes exclusions and limitations, in the same way that flood damage is not usually included in standard homeowners’ insurance. Some policies may even require additional coverage to address certain situations. And if the policy you choose does have gaps, you can get ahead of addressing them and making a plan before disaster strikes.

You should also understand policy limits and deductibles in your policy. There may be limits on the amount payable and deductibles that affect the payout. An insurance deductible is basically the amount of money you have to pay towards a claim before your coverage takes over. It’s like when you have to pay up to a certain amount on your healthcare plan before they pay the rest.

There are two ways deductibles are calculated: as a percentage or a dollar amount. And the higher the deductible, the less the policy will cost and vice versa.

Last, but certainly not least, choose an insurance provider with a solid reputation and financial stability. The last thing you want is to buy a policy that doesn’t actually deliver when you need it

Tips for getting the best coverage at the right price

Now for the million-dollar question: how much is this going to cost? The good news is, insurers are eager to compete for your business, so shop around for the best quotes. Bundling interruption coverage with other policies like property or casualty insurance can help cut the price for you and ensure you have multiple bases covered. Win-win!

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Protect your business – it deserves it

Phew, you made it! Wasn’t that bad, was it? Now that you’re armed with everything you need to know about business interruption insurance, you can start looking for plans to keep your business safe from the storm (literally!) 

Even once you’ve bought a plan, don’t forget to regularly review your coverage and update where necessary as your business grows and changes. Your original coverage may not meet your unique needs and mitigate your risks three years from now!

So, let’s recap. Business interruption insurance is an essential iron shield that all small businesses should have to protect against unexpected closures and help recover financial losses. 

Your dream is worth protecting. Your business is worth protecting. And with business interruption insurance, you can have peace of mind for when the unexpected happens.

FAQs

What is business interruption insurance?

Business interruption insurance is a type of coverage that helps businesses recover lost income and pay ongoing expenses when they are forced to close due to a covered event, such as property damage or a natural disaster.

Why do small businesses need business interruption insurance?

Small businesses need business interruption insurance to protect themselves financially against unexpected disruptions that can lead to temporary closures. This coverage ensures they can cover ongoing expenses and recover more smoothly, maintaining customer trust and loyalty.

How can small business owners choose the right business interruption insurance policy?

 To choose the right policy, small business owners should assess their specific needs and risks, consider factors like coverage limits, deductibles, and exclusions, and compare quotes from multiple providers. They should also regularly review and update their coverage as their business grows and changes.

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