Business interruption insurance: A lifeline to recovery

By Higginbotham on March 28 , 2016

Business interruption insurance

It’s a nightmare scenario for any business owner. Mother Nature cooks up a monster hailstorm, tornado or wildfire and puts your business squarely in the path of destruction. If you’re lucky, you’ll come through unscathed or with minor damage so you can patch up and move on.

But what if your business is in the middle of a major disaster area and damage is severe and widespread? It could be weeks, even months before you get back to business as usual – if you ever do. In the meantime, your income is shut down and your market share slowly slips away, all while the bills keep rolling in.

Every year, thousands of businesses across the country are forced to close their doors due to disasters. According to the Insurance Institute for Business & Home Safety, at least 25 percent of those businesses never recover. Many who stay in business struggle to keep their doors open.

It can happen to any business at any time – especially in Texas. What’s your plan for survival?

Here in the Lone Star State, we have the distinction of having more natural disasters than any other state. In fact, at least one major disaster is declared every year in Texas. And the recent hail and tornadoes in north Texas are stark reminders of how severe weather can change everything in a matter of seconds.

What’s your plan for long-term survival if your business premises were damaged to the point of being unusable? After a disaster, your property insurance will help you rebuild your building, but will you be able to rebuild your business after weeks or months of lost income?

You will if you carry business interruption (BI) insurance. You can’t get it as a stand-alone policy, but it can be added to your business insurance policy or a package policy such as a business owner's policy (BOP). Business interruption insurance typically covers:

  • Profits that would have been earned
  • Operating expenses and other fixed costs still being incurred
  • Relocation expenses for moving your operation to a temporary location

But keep in mind, even standard business interruption insurance doesn’t cover everything. If you’re renting a warehouse that gets destroyed and you rent another one that costs more, BI insurance will only cover the old rate. And if you have to replace your building, it may be more expensive than you expect due to new codes and modern materials costs. So you may need an "extra expense" rider. Extra expense insurance covers you for reasonable costs over and above normal operating expenses that are necessary to avoid shutting down during the restoration period. In some cases, extra expense insurance by itself may give you sufficient coverage without getting business interruption insurance.

Risks are on the rise, so don’t add disaster on top of disaster

According to a 2012 survey from global insurer Allianz, the number of natural disasters in a typical year has increased from 400 to more than 600, so BI insurance makes more sense now than ever. If your business gets caught in a disaster, the last thing you need is the added disaster of inadequate financial protection to get back up and running. Make sure you have adequate financial protection to rebuild your business along with rebuilding your property.

Contact Higginbotham Insurance to discuss your business insurance needs.

Related: Are you making these five costly business insurance mistakes?


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