The standard property insurance covers physical damage and losses, that is, furniture destroyed in a fire, a storm-damaged office building or stolen equipment. This coverage can help you pay the costs of rebuilding or replacing damaged property. What about those losses resulting from your business’s inability to operate due to property damage? For this type of loss, all you need is business interruption insurance, also known as business income insurance.
Obtaining Business Interruption Coverage
Business interruption coverage is not sold as a stand-alone policy. It can be obtained as part of the following types of policies:
• Commercial Property Insurance is the insurance where you can add an endorsement or rider to commercial property insurance that will extend the policy’s coverage to business interruption losses.
• Business Owners Policy (BOP) is intended for small businesses, where the insurance package policy includes property, liability and business interruption coverage.
• Commercial Package Policy (CPP) is a flexible policy that can be customized with a range of options, including business interruption coverage.
Other types of policies may include business interruption coverage for certain circumstances. For instance, some kidnap and ransom policies that will cover business interruption losses resulting from a covered event.
Understanding the Limitations of Business Interruption Coverage
While business interruption insurance may help your business survive a disaster, there are limitations and exceptions to this type of coverage. If you obtain business interruption coverage as part of a commercial property policy, the coverage will only extend to events delineated in the core coverage. If your property insurance does not cover wind damage, you cannot receive business interruption insurance if your company is displaced because of a windstorm.
There are also time limits on business interruption coverage, so be sure to discuss limitations and exceptions with your insurer or insurance professional, and whether purchasing extended business income coverage is a good option for your business.