Business Interruption Insurance

Posted On March 26, 2016

Business Interruption Insurance

When you operate a business, you generate income to pay your operating expenses, interest on loans and payroll.  You then, hopefully, generate a profit each year.  All income and net profit is the result of the daily operation of your business premises.  Even the most successful of us spend our business income wisely – we don’t have money to burn.


Why Business Interruption Insurance?

Insurance on your buildings and its contents protect you for the value of your property should it be destroyed by fire.  Business Interruption Insurance gives you protection for the “reason you are in business,” your cash flow and your future earnings.  Without Business Interruption Insurance you risk “burning your money”.

Following major damage to your premises, your income would be significantly reduced or be eliminated completely until your premises is rebuilt and restocked.  For some businesses who can quickly move to new or temporary premises and source stock and tools locally, this could be a short period of time. In such cases, a low level of Business Interruption Insurance may be acceptable.  Other businesses could be shut down completely for a long period of time, generating no revenues at all and face continuing, if not increased expenses. Your retained earnings and future profits would all be at risk of being consumed to keep you in business if you shut down after a major loss.  These past and future earnings are all insurable.

Don’t risk having to commit your past and future success to paying continuing expenses while your business has been shut down by a major fire or windstorm.

What can happen without Business Interruption Insurance?

Many business have had to shut down permanently after a fire or other major disaster.  They may have had adequate fire insurance, but lacked the resources from past profits, or borrowing power against future profits to pay the continuing expenses while their premises was being rebuilt.  These expenses could then make “going back in business” impossible.

What does Business Interruption Insurance do?

Business Interruption Insurance behaves almost as if it was your gross profit.  You have funds available to continue paying all the operating expenses of the business even though it has substantially slowed or completely shut down.  When the amount of insurance is properly calculated, and the scope of Business Interruption Insurance is properly selected for your operation, you should have your usual net profit left over so that you can continue to cover your debt service obligations and receive your ordinary return on investment.  The concept behind Business Interruption Insurance is to “leave you in the same position financially as if no loss had occurred.”

 

An A.P. Reid Commercial Insurance representative can tailor the best coverage for your business. 


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