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Business Interruption Insurance FAQs

Emily Steinbeigle • Oct 12, 2018

Should Your Company Have Business Interruption Insurance cover?

Coverage against events such as fire, floods and theft is an essential part of any company's insurance portfolio. However, while this coverage protects you against damage and loss, it may not be enough to compensate for all your costs after a major event.

Business interruption insurance gives you extra protection during this difficult time, until your business is back on its feet again. How can business interruption insurance help your company?

What Is Business Interruption Insurance?

If your company has a business-damaging event, like a fire, then your general insurance policy typically fixes the damage and pays for lost or damaged equipment and assets. While a policy like this covers tangible costs, it doesn't usually protect against what happens to your company after the fire.

You may think that your business will carry on as usual after this kind of event, but this isn't always possible. It may take weeks, months or even years until you're fully operational. If this happens, your company's income may decrease or even stop completely; however, your general outgoings stay the same, for example rent and electricity. You still have to meet your financial commitments and may even incur additional costs until you're fully operational again. This can be a very difficult time for many small businesses.

Business interruption insurance gives you specific coverage for losses and costs when your business isn't operational, following a fire or peril. Even if your business can't make any money for a while, you'll have access to enough cash to keep it running.

What's Included?

Not all business interruption insurance policies have the same features; however coverage typically includes the following three benefits.
Revenue Loss
If your business can't operate, it can't earn. Business interruption insurance payments, usually calculated on a gross profits basis, ensure that your revenue is protected until you're up and running.
Fixed Costs
Your fixed costs don't go up in smoke when you have a fire or other event — you're still legally obliged to make these payments. For example, business interruption coverage helps you make loan and leasing payments and pay utility bills. It also ensures that you retain key staff, assisting with wage commitments, even when your staff can't work.
Relocation Costs
If your premises are badly damaged, then you may need to move to temporary accommodation until your office is renovated. The costs of finding, renting and moving in and then out of new offices is significant.

How Long Does Coverage Last?

Some companies only need a few months to get over a business interruption; others need years. One of the benefits of this insurance is that you buy coverage based on an indemnity period — the length of time the insurance company pays out — rather than on a fixed timescale.

However, if you've never had a business interruption before, then you may not know how to calculate the right indemnity period. If this period is too long, you'll pay more for coverage than you need; if it's too short, then you won't have financial help for as long as you need it.

Westralian Insurance has the expertise to help you choose the right indemnity period and the best business interruption benefits for your company. To find out more, contact us.

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