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Business Interruption Insurance

If you have property insurance, you would recover payment for the damage or loss of your business properties like furniture and computer, in case of fire or flood. But what about the lost income while your place of work is being cleaned up or rehabilitated?

Find out how to insure your business from possible interruptions.

Property Insurance Basics

To protect one’s business from losses and expenses in relation to damage or loss of property, business owners purchase property insurance. A basic property insurance covers common risks such as fire or theft. This ensures that in case a business office, as well as its contents such as furniture and supplies, is destroyed by means specified in the policy, the owner gets payment for the damage or loss. A business could also be further insured against specific calamities such as flooding, earthquake or sleet damage. Still, there are other more specialized insurance like an insurance that covers specific property like glass windows or properties in transit, or services like debris removal after a flood. One of these specialized insurance is business interruption insurance.

Business Interruption Insurance

A business owner should think about buying such insurance considering that business interruption is damaging to a business in that prolonged shutdown might result to the loss of customers to competitors. Business interruption insurance compensates an insured business not only for expenses due to damage or loss of property because of a covered disaster but also for the loss of income when the operation of the business is interrupted due to such calamity.

Inclusive of the recoverable amount under such insurance are rents and salaries lost while the business was temporarily closed due to repair or cleanup. The amount is usually based on financial records – what the business usually earns during its operation. Recoverable expenses also include overhead expense even if the business hasn’t consumed such. As an added feature, there is what is called an extra expense coverage that compensates the insured for expenses incurred for temporarily relocating the operation of the business. Extra features carry extra payment on premiums, of course. Premiums for the same risks are higher for establishments more prone to such disaster than one that faces a lesser threat.

Business Interruption Insurance Calculation

The amount of insurance coverage is based on gross earnings, and this is where some difficulties could arise. The insured and the insurer could have different methods of determining this number and this confusion could lead to underinsurance. Determination of the correct amount when insuring for business interruption is important because the insured could suffer penalties for under insuring. This penalty in case of underinsurance is deducted from the total claim. A way to remedy this risk is to ask a prospective insurance whether they have a mechanism that would allow purchase of a policy at a higher limit and refund in case of overinsurance.

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