Your commercial policy will generally have a form of business interruption in the form of extra expense coverage which is the extra expense you incur to continue operating perhaps in a different location that you would not have suffered if you did not have the loss. This is often a small limit and should be reviewed and considered on renewal. Your broker can help you determine if you have the correct amount for this.
Types of Business Interruption
There are three types of business interruption insurance and specific items businesses should consider for each
This is designed to replace income your business would have incurred had no loss occurred. Business income is generally defined as the net profit or loss before taxes, plus continuing normal operating expenses, including ordinary payroll (payroll for employees other than officers, executives, department managers or employees under contract). Coverage is generally limited to the loss of income sustained until the property is restored, or a specific timeframe following the loss.
Extra Expense is designed to pay for necessary expenses incurred during the period of restoration of the property. Extra expenses include those necessary to continue operating the business at its original location or at a temporary replacement location until the original location is repaired.
Contingent Business Interruption is an extension of coverage designed to cover loss of income your business incurs due to a property loss at a key supplier or customer location. For example, if a key supplier experiences a fire at its plant and is unable to deliver parts or goods necessary for the continuation of your business, you may have a claim for a contingent business continuity loss.
Business Interruption Coverage Explained
Hopefully we were able to provide some helpful information. This coverage can be tricky and it is important to discuss it with your broker. A profits worksheet can be completed to help you determine the level of coverage you require. A broker can also help you understand the common exclusions, limitations and warranties that can arise for business interruption insurance.