Everything You Need to Know About Business Interruption Insurance in 2023

TLTR: This article discusses in detail about business interruption insurance, the best companies that sell the policy and why your business needs it.

“Build your own dreams or someone will hire you to build theirs” — Farrah Gray

Being your own boss is a dream come true for most people. And one way to achieve that goal is to own your own business. In fact, self-employed people are usually small business owners in the U.S.

According to U.S Bureau of Labor Statistics, about 10.3 million people are expected to be self-employed by 2026.

But what about the hurdles? There are many obstacles that you need to overcome as a business owner. Apart from having to deal with fixed expenditures, you’ll likely have overhead to deal with such as rent, utilities, taxes, and insurance premiums.

What Is Business Interruption Insurance?

A business interruption insurance policy helps you cope with loss of income by providing financial aid if your business shuts down temporarily due to unforeseen events such as natural disasters.

Let’s say your business office is damaged by forest fire during a particularly dry season. The destruction caused by the fire is so thorough that have to shut down your business temporarily, and you lose money because you can’t operate. In this situation, a business interruption insurance policy will cover you for the income lost during the closure of your business. The policy will provide business income coverage till you have recovered from the catastrophe and are back on your feet.

Business interruption insurance isn’t a stand-alone policy—you can get it as an added endorsement to a business owners policy.

Note: According to Investopedia, the policy is primarily for interruptions caused due to natural disasters. In rare cases, it can cover you from civil unrest. However, pandemics/epidemics are generally excluded from the policy. Please check with your insurer for further details.

What Your Business Interruption Insurance Policy Covers

A standard business interruption insurance coverage includes the following:

Lost Income

As in the example above, a BI policy will provide reimbursement for possible loss of income which occurs due to a temporary shutdown of business operations. In this situation, your insurance agent will help you calculate the revenue you would have made. This calculation is the basis for making a claim.

Expenses

To ensure that it runs smoothly, a business will face a myriad of expenses. If your business is still in its initial phase, your expenses are likely to be higher. According to Shopify, small businesses may spend an average $40,000 in their first year.

For example, say a business is temporarily shut down due to a hurricane. In order to continue operating, the company may need a helping hand in paying for their usual expenses such as tax or utility bills. The BI insurance policy will help pay for some expenses for a certain period.

Note: BI insurance generally helps the business owner cover taxes but not utilities such as water and electricity. If your business has been halted then it would be best to stop utility services for your office till you resume work again, if possible.

Relocation

If your business area has been completely or partially devastated due to an unforeseen event, the business interruption insurance policy will help you relocate the business. Sometimes the relocation can be temporary and other times it may be permanent. Depending on your need and the initial contract, the insurance company will help you pay for relocation expenses.

Technological Barriers

Every business uses computers for their day-to-day operations. Every important document is stored in online or digital storage systems. In case of cyber-attacks, the company may have to temporarily shut down.

While your standard cyber liability insurance would help you cover the damage of a cyber-attack; a business interruption insurance policy will help you cover the revenue loss due to the temporary shutdown.

Taxes

As a business owner, you must be aware of how every business must pay taxes regardless of their income. In a financial crisis where your business shuts down temporarily due to a natural disaster, BI insurance can provide you with adequate funds to pay taxes.

Wages

According to Highland Solutions, about two-thirds of Americans have been living from paycheck to paycheck since the pandemic hit in 2020. This is mainly due to the rising cost of living and lack of a steady wage growth.

Shutting your business down temporarily may create financial difficulties for your employees. Having a BI insurance policy will help you and your employees make ends meet during a difficult time.

Which Businesses Need Business Interruption Insurance?

Every business could benefit from a BI policy. However here are some businesses that MUST have it.

Landscaping Business

Landscaping businesses have a high probability of facing damages, mainly because their work is based outdoors. In fact, when working on large projects, a landscaping business may even need to set up an office at their site location for weeks.

Landscaping business insurance can come under a general liability insurance policy. According to Insureon, most landscaping businesses choose a general liability policy with a $1 million per-occurrence limit.

Landscaping business insurance costs around $45 per month. Of course, this is the minimum pricing for a small business. If you have a mid-sized or big business, your premium will be higher.

Note: the cost of landscaping business insurance may be different for you. This is just an approximated average price. Please contact your insurance provider for exact rates. 

You can also include a business interruption insurance endorsement in your coverage for smooth maintenance and financial support of your business in cases of lost income.

Here are some other policies you should consider if you have a landscaping business:

• Commercial auto insurance
• Workers compensation insurance
• Equipment insurance

Photography Business

Being a professional photographer is expensive. You have costly equipment which you need to use on a regular basis. It’s important for a photography business insurance policy to be comprehensive.

For instance, you have a beachside photoshoot campaign for a modeling agency. While the first few days of your shoot are hassle-free, you’re suddenly hit with extremely bad weather. If it becomes a full-fledged storm, your work may be temporarily shut down. Your photography equipment might be insured, but what about your business? A BI insurance policy will help you get through this difficult situation and other scenarios like it.

Most photography businesses have insurance as a standard business owners policy. The policy includes:

• General liability insurance
• Business interruption insurance

You can get insurance for your photography business for as little as $17 a month.

However, photography business insurance must also include:

• Cyber insurance
• Professional liability insurance
• Home-based business insurance

Note: A photographer who shoots irregularly can consider getting an event insurance policy for coverage specifically when they have their shoots.

Food/Restaurant Business

Any type of food business- restaurants, coffee shops, food trucks or other food services have their share of problems. If you run a food business then you know how important insurance is for your company.

The basics of your food business can be covered using a business owner’s policy or a general liability insurance coverage. However, a more reliable option would be to get a customized food business insurance or a restaurant business insurance.

The average cost for premium is around $140 per month. However, you should check with your insurance company on what your premium cost will be. The costs vary based on what kind of business you run. For example, a coffee shop that only serves coffee and sandwiches will be less costly to insure than a high-end restaurant.

An ideal food insurance or restaurant insurance would include:

• Product liability insurance
• Business interruption insurance
• Worker’s compensation
• Liquor liability insurance (based on your states dram law)
• Commercial auto insurance
• Equipment insurance
• Commercial property insurance

Candle Business

With over 10,000 different candle scents available, the candle industry is slowly but steadily growing. According to Candles.org, candle product sales are around $3.4 billion annually. But even with business booming, it’s as vulnerable as any other industry to unfortunate events.

Most candle business owners have a standard business owner’s policy. It includes your regular policies such as general liability insurance and equipment insurance. A standard policy for a candle business can cost you about $450 annually.

Adding a business interruption insurance endorsement for a candle business insurance will help keep the business from going bankrupt in case of a catastrophic event.

It’s a good idea to consider adding these additional policies for your candle business insurance coverage:

• Professional liability insurance
• Third-party property/bodily damage liability
• Commercial property insurance
• Commercial auto insurance
• Product liability insurance

Construction Business

Working with dangerous machinery and operating at elevated heights means accidents in the construction business are common. And so are incidents that can necessitate a business interruption insurance policy. Why?

Let’s say your construction business is remodeling an old building. Your job may be limited to redesigning the interiors.

In the event of a huge storm, tornado, or hurricane that damages the structure, you would have to halt your work till the damage is repaired. Your business will temporarily shut down. But you will still have employees to pay and raw materials to store in a secure location.

A business interruption policy will help you take care of your expenses till you can resume your work on the construction site again.

Construction business insurance will only cost you about $85 per month or even 1%-5% of your total project cost. The prices will depend on your team, your project and your insurance company.

A good construction business policy should include:

• Worker’s compensation insurance
• General liability insurance
• Commercial auto insurance
• Professional liability insurance

Startup Businesses

Startups can be a challenge to get up and running. Their market image is not popular and they have a limited customer base. Startup businesses require an affordable business insurance plan. According to HowMuch.net, startup business insurance costs about $600 annually.

To prevent a business disaster caused by a natural disaster, consider adding a BI insurance endorsement to your startup business plan.

Here are some policies you should consider as a startup business:

• General liability insurance
• Risk insurance
• Professional liability insurance
• Errors and omissions insurance
• Commercial property and auto insurance

Insurance Companies That Provide Best BI Insurance

Insurance coverage for business interruption can cost an average of $27 per month for a small business. Here are some small business insurance companies you can buy BI insurance from:

Summing Up…

Business interruption insurance policy is a good way to provide stability in an increasingly uncertain world. Make sure you have a good protocol to protect your business. Invest in BI insurance today!

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