Running a business comes with its fair share of uncertainties. No matter how carefully you plan, there is always the risk of unforeseen events disrupting operations. These disruptions can range from minor setbacks to major events that halt business entirely, threatening your financial stability.
This is where business interruption insurance comes in, explains Jason Mellow, head of broker distribution at MiWay. “Business interruption insurance protects your business from the financial fallout caused by disruptions to operations. Unlike general property insurance, which covers physical damage to a business premises or equipment, business interruption insurance focuses on the loss of income and the additional expenses incurred while your business is unable to operate normally.”
By covering the loss of revenue during a business closure, business interruption insurance ensures that you can meet ongoing expenses such as salaries, rent, and utility bills even when your business isn’t generating income.
In cases where a business needs to temporarily relocate, the policy can also cover the additional costs incurred during the relocation process.
When asked what events business insurance typically covers, Mellow says the list is extensive.
“Businesses can claim for the impact of natural disasters like floods or earthquakes, fires, explosions, and even cyber-attacks. Coverage can also extend to events like government-mandated shutdowns, supply chain disruptions, or utility outages.”
It’s worth noting that policies may also cover civil disturbances, such as protests or riots, if these prevent access to your business premises. “But not all policies are the same, so it’s vital to clarify with your insurer exactly what is covered in your particular policy,” Mellow adds.
That said, there are some events that business insurance won’t cover. “It won’t pay for physical repairs to property, which are typically covered by property insurance. Nor will it cover losses resulting from slower business periods due to economic downturns or decreased demand. Additionally, it does not cover losses caused by pandemics unless specifically included in the policy, which many insurers excluded following the COVID-19 outbreak.”
To ensure your business has the right level of coverage, Mellow stresses the importance of conducting a detailed risk assessment. “Identify the specific risks your business faces, whether they’re natural disasters, technological failures, or market-related issues.
“Then calculate your potential revenue losses and ongoing expenses- both fixed and variable- to assess the financial impact of any operational standstill. Based on this evaluation, determine the right coverage limits and regularly review your policy as your business grows or changes to stay protected against evolving risks.”
Finally, there are several misconceptions about business interruption insurance that can prevent business owners from fully appreciating its value.
One common confusion is that small businesses don’t need it, when in fact, they are often more vulnerable to financial collapse during disruptions due to tighter margins.
Another assumption is that it’s too expensive, but the premium is often a small fraction of the potential revenue loss from an extended shutdown. It’s also important to understand that the cost of coverage can vary based on your industry, location, and specific risks. The costs of not having it vastly outweigh the premiums of having it in place.
Given the unpredictable nature of life, Mellow says that understanding business interruption insurance is key to safeguarding your company’s future. “Don’t wait for the unexpected to happen; consult with your insurer today to tailor a policy that meets your needs and ensures you’re adequately covered against potential disruptions.”