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Business Interruption Coverage

December 6, 2011

Business interruption is an extension on most property polices, stepping in to cover the loss of income that a business suffers after a disaster while its facility is being rebuilt.  Whereas, the property section only covers the physical damage to the business, the additional coverage allotted by the business interruption policy typically covers:

Profits – Profits that would have been earned.  This is based on actual prior months’ financial statements.

Fixed Costs – Operating expenses such as rents, utilities and other costs still being incurred by the property.

Temporary Location – Some policies cover the extra expenses for moving to, and operating from, a temporary location.

Extra Expenses – Reimbursement for reasonable expenses that allow the business to continue operation while the property is being repaired.

Business interruption coverage is not sold separately; it is generally added to a property policy or automatically included in a package policy. This is good news and in all likelihood you already have this coverage.  However, there are a few things to consider:

Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track.

Coverage extends until the end of the business interruption period, which is determined by the insurance company.  Obviously, longer is better.

Coverage is generally limited to a loss caused by a property peril such as fire. You may want to consider other policies such as cyber liability to provide for loss of income due to computer attack or other non-physical peril.

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