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Business Interruption Insurance
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Business interruption insurance is an oft-overlooked type of insurance, but its intention is to indemnify against the loss of profits and to ensure that the regular fixed expenses for a business get paid. Sometimes generically called "business income protection", "profit protection", or "out-of-business coverage", this insurance is used during a company's forced shutdown.
Business interruption insurance may take several different forms: Contingent Business Interruption; Extra Expense Form; Gross Earnings Form; Profits and Commissions Form; Tuition Form; or the now-most-used Business Income Coverage Form.
A business might be forced to cease or limit its normal daily operations because of an accident or injury which disables an owner or key employee, a legal liability claim, or a property loss from a fire, a natural disaster, or theft or vandalism. More well-known types of indemnity insurance like P & C, liability, and disability, only provide businesses with protection against specific risks; but these insurance policies seldom cover the indirect costs that are associated with actual losses of business income -- sales and profits.When a small business suffers a loss, as in the case of property damage in a fire, it may be forced to shut down for some time or move to a new location, either temporarily or permanently. The most vulnerable to such circumstances are the self-employed and the owners of small business owners, for they usually operate on very tight, small profit margins and, while they enjoy greater freedom and much more power, are barely more secure than their employees financially. Entrepreneurs, too, often invest a large percentage of their of personal funds in their businesses, and the businesses are often unable to continue daily operations without their direct involvement.
A company might have to draw on limited cash reserves in order to pay perpetual expenses like taxes, salaries, loan repayments, and utilities, despite the fact that it doesn't have any income. There might even be extra expenses in a crisis situation, including but not limited to employee overtime or rent paid at a temporary location. This may all be exacerbated by the fact that clients or customers may become disgruntled with the business' inoperable status and, though it may be temporary, go elsewhere, thus causing the company permanent income loss to be added to the temporary loss.
Thus the business interruption insurance policy pays the business' perpetual expenses in addition to compensation for the owners or the shareholders for lost revenues during a forced shutdown. Policies may also cover employees' salaries during such a time. Most of the time, the revenues received from such a policy are taxable, but the premiums are tax-deductible.
As you might imagine, business interruption insurance can become somewhat tangled, given the minute details of what is "fair compensation" that need to be worked out between insurer and client company. If you feel that your company is vulnerable to potential lapse in daily business that may have disastrous results, fill out this form to find out how get affordable coverage.
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