Overcoming a loss in your business can take time, and as the old saying goes, “time is money”. Having disruptions can slow or stop business operations altogether, but orders keep coming and cash flow is still needed. You’ll need to carry on despite your loss and this takes an already complicated situation to new levels.
Business owners are encouraged to enroll in a business interruption policy to offset the costs associated with lost revenues, moving forward during hard times, paying the bills, ensuring payroll is met, etc. Both physical and cyber perils exist now that the Internet is deeply integrated into virtually every business in America. The right protection can help you right your ship no matter how rough the seas may be.
What is Business Interruption Insurance?
A business interruption insurance policy is protection for your company when a loss has made it impossible for normal operations to continue. This can include order fulfillment, a loss of products or services, and any other routine act for your business. Even disruptions online may be included due to cyber attacks depending on the nature of your business and your insurance policy’s coverage terms.
How Does Business Interruption Insurance Work?
If your company is forced to interrupt operations due to a loss that causes physical damage, your business interruption policy will help you maintain during this difficult time and get things back on track. Here are some common examples of what is covered by your policy:
- Weather-related losses including damage from wind, hail, and lightning.
- Fire damage.
- Damage after theft or break-ins.
- Falling objects.
- Cyber attacks and accidents involving vehicles and aircraft may also be covered depending on your policy.
Once your claim is successfully filed, a business interruption policy will help you cover the following costs:
- Restoring damaged property that is necessary for operating your business.
- Lost wages and income.
- Additional expenses such as relocation costs, retraining costs, loan payments, mortgages/rental costs, and taxes.
Items destroyed during such events won’t be covered, however, and neither will utilities nor income that may be “off the books”.
Business Interruption Insurance’s Period of Restoration
The period of restoration is the waiting period before your policy is active. This is usually between 48 and 72 hours. Your business interruption insurance policy will then last for 30 days, however, extensions can be made through endorsement lasting for up to 360 days. Consider your options and receive the best form of protection by speaking with a licensed insurance agent to find the right endorsements for your company.
What’s Not Covered By Business Interruption Insurance
The key to remember here is your coverage protects against physical damage causing an interruption. Even with this in mind, there are exclusions business owners should be aware of:
- Flood damage is not covered.
- Diseases aren’t covered, including COVID-19 or any other variant.
- Earthquakes and other earth movements are excluded.
- General maintenance leading to a loss including infestation or general wear and tear is not going to be covered.
- Acts of war leading to loss of business.
- Nuclear disasters will not be covered.
In addition, other forms of disruption to your business that are not of a physical nature won’t be covered including things such as defamation.
The Average Cost of Business Interruption Insurance in Texas
The cost of business interruption insurance can range from several hundred to a couple of thousands of dollars in the state of Texas. Determining the amount your premium will amount to includes assessing a number of factors including the nature of your business, the size of your company, where your business is located, the amount of coverage you require, and so forth. Even your claims history will play a part in how much your company can expect to spend on business interruption insurance premiums.
An insurance provider is going to assess how much risk you carry as a client. If you have more risk, you’ll likely pay higher premiums and vice versa. For example, if you are a business in an area prone to windstorms or wildfires, a business interruption insurance policy will cost you more than businesses outside of such perils. The same is true for businesses operating within injuries more likely to cause physical damage that could prevent business from continuing. A large warehouse company would likely pay more for protection than a local restaurant.
While insurance companies all assess risk, each brand uses its own methods to do so. This and the fact that each business will have unique variables surrounding its operations can lead to a variety of rates even for similar businesses. Our free, online tool can deliver an accurate estimate on the rates your business can expect to pay on premium as we can instantly shop your coverage among our multiple A-rated insurance providers. Get a business interruption insurance quote here.
How Much Business Interruption Insurance Do I Need?
The amount of coverage a business needs will vary. This is why it’s important to speak about your company’s operations and the other characteristics insurers will assess with a licensed real estate agent. At a minimum, you’ll want enough coverage to keep your business going for 30 days following physical damage that would cause you to halt operations.
There are additional business interruption coverages available, however, that may also benefit your company specifically. By auditing your operations you can assess your needs and prepare for them. Take a closer look at some additional options business owners have to overcome disruptions their companies:
If the government prohibits your business from operating due to physical damage occurring to a nearby property, civil authority coverage helps you offset the costs of interruption to your business. Your protection under normal circumstances will last for a maximum of two consecutive weeks and will require physical damage for coverage even if the government were to prohibit access to you for other reasons.
Contingent Business Interruption Insurance aka Dependent Properties Coverage
This coverage helps offset the costs involving non-owned property that is damaged. There are four types of businesses that generally benefit from such coverages:
Extra Expense Insurance
An extra expense insurance policy can be a supplement to your business interruption policy or added as a rider to your business insurance policy. It covers many of the extra costs that take place during a disruption to business including replacing damaged property, renting a temporary location, renting necessary equipment, hiring employees, and payroll expenses such as overtime.
Every business depends on basic utilities to operate, and when utilities are disconnected, it can cause your operation to come to a halt. Utility services coverage protects your company from disruptions involving a lack of access to electricity, gas, and water services. Your coverage will also allow two important endorsements that may affect how you are covered:
● The time element will cover business expenses and income until either your services are returned or up to a set time limit.
● Protection against direct damage to your property that stems from a utility interruption named in your policy as a result of a covered cause.
Table Information Source: The Insurance Information Institute
Affordable Business Interruption Insurance in Texas
Keeping your operating costs low is an essential function for any business owner. Freedom Insurance Group helps businesses across Texas achieve this goal every day with affordable insurance products.
Our range of business insurance policies, including business interruption insurance, comes from 25+ top-rated insurance providers we’ve partnered with that consistently deliver the best coverage available without cutting your protection. The right business interruption policy can be the difference between overcoming a major loss or succumbing to it. We provide trained agents who are experts in finding you unique solutions to protect your company against potential harm. Contact us today to learn how we save our average client 40% on their insurance coverages.
Business Interruption Insurance FAQs
Business owners know that their companies take hard work and diligent care. It only makes sense that there are many questions you might have regarding how to properly protect your company, and we are here to help. Our agents are trained and ready to be a resource to you and your business in identifying the best coverage options for your needs. Feel free to contact our team at any time!
Though Freedom Insurance Group is here to help, we also understand that some questions are more common than others. You can never replace the touch of a trained agent reviewing your individual business, however, we’ve created a helpful FAQ section to some of the most popular concerns involving business interruption insurance policies. This is a great guide that can help you better understand how the policies work to safeguard your business.
A contingent business interruption insurance policy is a specific coverage that protects your business from damage to non-owned goods. For example, if you have a supply of materials that is damaged while en route due to supply chain issues, you may be covered should the disruption affect your business. Suppliers, buyers, providers (manufacturers), and drivers (storefronts) can all benefit from this kind of protection. To better understand how your business would be protected and from what types of perils, speak with an insurance agent about your specific needs.
Yes, business interruption insurance proceeds may be taxable if they are used to supplement the lost income. No, the proceeds are not usually taxable if they are used to restore the damaged property for your business. However, each company’s situation may vary and the best way to know for sure about your business’s taxes involving business interruption insurance proceeds is to consult with your CPA.
No, because business interruption insurance is coverage for losses caused by physical damage, you are unlikely to have a successful claim involving COVID. In fact, a federal court in Texas has already dismissed a lawsuit involving an unsuccessful claim involving such matters.
No, flood damage is excluded on virtually every business interruption insurance policy. In Texas, business owners are encouraged to purchase flood insurance separately for their businesses to mitigate flood-related losses.
A business interruption policy begins 48-72 hours after your company has suffered a covered loss. Your protection can last up to 30 days or 360 days with a proper endorsement.