A detailed look at Business Interruption and what it covers
When you run a small business, there are a lot of things which can interrupt the day to day running – whether it be severe weather damage; a break and enter or even losing a piece of portable equipment. Going through events like these can be costly, and while you might have insurance to cover the cost of repairs or replacement; if your business is unable to operate and bring in revenue for a period because of an insured event, the lost income would likely further add to your financial challenges.
Business interruption cover can be available under a Business Insurance Pack policy, and it may help relieve the financial pressures felt during the time it takes to get your business’ revenue back to where it was before the event happened. Below, we discuss the Business Interruption features usually available under Business Insurance Pack policies, how it works, and the benefits of having this cover.
Business Interruption Insurance definition
Business Interruption insurance refers to a type of insurance covering loss of profits or an increase in expenses because of an insured event which interrupts the normal operations of a business. Business interruption insurance may be in the form of a standalone policy or it may come as an optional cover section on other policies – for example Business Insurance Pack policies. Your business may have the added protection against lost revenue and additional expenses where an insured event happens. For example, say your business experiences a theft where there is also significant damage done to the property. If you have theft cover included in your Business Insurance Pack policy and make a claim under your policy, it may cover the cost to repair the damage and replace your stolen items. But, if you selected the Business Interruption option, then the revenue your business misses out on while your business premises and/or equipment is being repaired or replaced may also be covered.
What does Business Interruption Insurance cover?
Business Insurance is usually available as an optional extension under Business Insurance Pack policies and is not automatically included. Because of this, an additional cost is likely to apply to take this cover out. Business Interruption cover may apply in different ways under different policies. For example, a policy may require that your premises suffer physical damage for a claim under Business Interruption to be covered. In this instance, even if your business is interrupted by an insured event, such as a storm, and is forced to shut down resulting in loss of revenue, unless the storm caused physical damage to your property, cover for the lost revenue under the Business Interruption section of the policy will not be available.
What is covered in Business Interruption Insurance?
Business Interruption can help cover the loss of profits, revenue or the increase in expenses incurred following an insured event because of your business not being able to run normally. This loss is based on the profits you would have expected your business to make during the time it takes to repair or return your business to ordinary operations. If you opt for Business Interruption under your respective policies, you may be asked to provide the following information:
– your annual turnover.
– discussions around your business model
– your sum insured.
Indemnity Period
When it comes to Business Interruption, you may be able to nominate the period of time your loss of profit, revenue or increase in expenses will be covered for – this is called the indemnity period. It’s important to consider the unique circumstance of your business when making this selection. There are several factors to consider such as but not limited to; your business model, your industry, and the type of work you do, your location or even the time it can take to replace equipment or stock, can impact the indemnity period you require.
Increased Additional Costs
Business Interruption insurance may also extend to cover increased additional costs. If your business premises or equipment suffers damage, you may be faced with additional unexpected expenses in minimising the impact to your business, such as:
– Costs to set up a temporary site,
– Costs to relocate your stock to a safe location; or
– Costs to notify your clients of the temporary changes to your business operations
Depending on the type of Business Interruption policy you hold, these types of costs may be covered.
Benefits of Business Interruption Insurance
If your business goes through an insured event which impacts your revenue, chances are, there are plenty of bills and expenses which keep piling up. The biggest benefit of having Business Interruption insurance is that you may have cover for some of these costs incurred, possibly reducing the need to pay these expenses out of your own pocket.
Average cost of Business Interruption Insurance
The cost of Business Interruption insurance will of course depend on the types of policies your business may hold. There are several factors which are used to calculate a premium under Business Insurance Pack policies, such as the sum insured of your assets; your business’s location and your industry, even the type of building your running your business from can impact the premium, for example some building materials are deemed more flammable than others. To demonstrate how much Business Interruption insurance can cost, here are some examples of premiums of Business Insurance Pack policies arranged through Aon, with and without Business Interruption.
Joe operates a small accounting business with a revenue of $350,000. He takes out a Business Insurance Pack policy with contents insured for $30,000, theft cover for $20,000, Public Liability and Business Interruption covers selected. His annual premium came to $1,653.16. Without Business Interruption, his annual premium could be $1,184. Sam operates a small dental clinic with a revenue of $180,000. Her Business Insurance Pack policy has contents insured for $70,000, theft cover for $5,000, Public Liability and Business Interruption covers selected.
Sam’s annual premium with Business Interruption comes to $1,736.43. Without Business Interruption, her premium could be $1,489.57.
Taking the above examples, keeping in mind that these examples were limited to Business Insurance Pack policies; this does not mean that the cost of Business Interruption is simply the difference between the two premiums. If any of the details used to calculate the premiums change or the market changes, then the premiums both with and without Business Interruption will also change. **
Running your own business isn’t easy, but when you add the likelihood of your business being impacted by an unfortunate event to the mix, the challenges can be even more complex. Business Interruption cover is a valuable cover worth seriously considering if your business is your livelihood. By providing you with a safety net, it can help your business stay afloat if your business suffers loss or damage as a result of an insured event. To get a quote for a Business Insurance pack policy which may help alleviate some of the concerns mentioned above, jump online, or call our team
This article was contributed by Aon Insurance.
You can find more information at: https://business-insurance.aon.com.au/
Original article source: https://business-insurance.aon.com.au/sme-talk/risk-insurance/what-is-business-interruption