How Business Interruption Insurance helps your business
Disruptions to business operations and sales are one of the biggest risks to any business, regardless of size. Without Business Interruption Insurance, many businesses fail to reopen after a large fire or storm claim, as they run out of money while waiting to reopen. It is however, often overlooked due to cost or because the important benefits are not fully understood.
There are two main ways to buy this type of insurance. The first is based on weekly income/ sales, with the second based on annual gross profit, plus fixed overheads (like wages, interest on loans and rent). The first is generally for smaller businesses and is aimed at the insurer paying an agreed amount weekly that will cover the basic costs to keep the business from closing its doors. So if you are on the fence about Business Interruption Insurance, it’s important to realise that it doesn’t just cover losses to your business’s net profits, it’s designed to assist your business back on its feet.
How can Business Interruption Insurance help your business?
To put this in perspective, before the disaster happened, you paid your lease, employee wages, interest and utility bills. After an insured event, like a fire or storm occurs, your Business Interruption Insurance will pay weekly or monthly (for up to 12 months) to enable you to continue paying these bills, while you rebuild and recover to the point where you can begin trading again. Some insurance policies also keep paying you until your sales are back to pre-loss levels, so the Indemnity Period of the policy you choose is also important. This keeps your employees and suppliers happy and gives you time to get back on your feet.
If you still don’t understand this distinction, imagine what would happen if your factory building burnt down. You have lost everything. You have no machinery, no supplies, no building. What would you do? The first action you would likely take is to ring your insurance provider and put in a claim for the loss of the building, machinery and supplies. That’s fine, but what happens now? How do you trade? What’s the point in leasing another building when it’s going to take weeks to setup your business in a new location? Do you put everyone on leave? How do you pay your bills? What if there isn’t another suitable building in the area and what if your replacement machinery can’t be delivered for at least another 12 weeks?
This is where Business Interruption Insurance fills the gap because it gives you the means to pay all your bills until you can begin trading again.
Meet Mark & Fay – Retailers & Wholesalers of steel products
Mark and Fay’s factory/warehouse is on an industrial estate next to the freeway giving them quick access into and of the city. Their products are shipped all over Australia and business has been growing nicely over the past few years, including through COVID. However, at about 10am on a Monday morning, Mark hears an almighty screech and rumble outside.
They stand there in disbelief as they look down into a sinkhole that has just opened up in the road. It spans the entire width of the road and the screeching was one of their trucks that just managed to stop before falling headfirst into the hole. Joe, who owns the factory next door, comes running over from his warehouse next door and they both peer down into the sinkhole.
Three months later, the sinkhole has finally been repaired and thanks to their Business Interruption Insurance, Mark & Fay can start trading again. They think about Joe who used to own the warehouse next door but went out of business within weeks of the sinkhole appearing. Business Interruption might have come in handy for him, that’s for sure.
To find out how Business Interruption Insurance can help your business, talk to an insurance specialist today and contact Gail Findlay.
This article originally appeared on Insurance Advisernet Website and has been published here with permission.