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Key Takeaways Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted due to direct physical loss or damage, such as might be caused by a fire or a natural disaster. This type of insurance also covers operating expenses, a move to a temporary location if necessary, payroll, taxes, and loan payments.
In rare cases, business interruption insurance can apply if a civil authority shuts down a business due to physical damage to a nearby business, resulting in a loss for a firm. Standard business interruption insurance does not reimburse policy holders if the business is closed due to a pandemic.
Even some all-risk insurance plans have specific exclusions for losses due to viruses or bacteria. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. A BOP is worth checking out if you have a small or mid-sized business and are interested in buying all three of these coverage types.
Business interruption insurance covers the operating expenses for a business due to a problem covered by the policy. The covered perils for business interruption insurance are generally theft, wind, fire, lightning and falling objects.
Every business interruption policy generally has a coverage limit. This is the maximum amount your insurance company will pay toward a business interruption claim. Look at your gross earnings and earnings projections as guidelines for the right amount of coverage. You want the insurance to cover the costs of operating expenses while repairs are being made to the business. The cost for a business interruption insurance policy is based on a variety of factors such as your industry, the number of employees and the amount of coverage that you choose.
A restoration period usually lasts up to 12 months. So if your business was damaged on April 1, you would be entitled to business interruption benefits until April 1 of the following year. The restoration period begins with 30 days and then gets extended as needed up to a year.
The question of whether business interruption insurance should cover losses due to the pandemic has been a contentious issue. The insurance industry maintains that there is generally no business interruption coverage for pandemics, but many businesses have been pursuing arguments in court that their losses should be covered.
Business interruption insurance does not generally include coverage for pandemics. Already, several lawsuits have been resolved in favor of insurers, and we expect that insurers will continue to prevail in the courts. Lucy Lazarony is a personal finance writer and journalist. Prior to freelance writing, she worked as a staff writer for Bankrate for seven years.
She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American University in London. She lives in South Florida. Select Region. With COVID disrupting global supply chains and sales, businesses are losing income and incurring additional expenses as a result of the interruption. Business income interruption insurance can also include extra expense, which will cover anything beyond the normal day-to-day operating expenses that are necessary to keep a business solvent.
Instances of extra expenses include:. This coverage — which typically does not exceed two consecutive weeks — applies when a civil authority e. Even when a government order prohibits or otherwise specifically restricts access to an insured premise, the policy may still require a direct physical loss before triggering coverage. How much does business income interruption insurance cost? Business income interruption coverage also known as business income coverage BI , can help with operating expenses during the period of restoration, and includes: Lost net income based on financial records Mortgage, rent and lease payments Loan payments Taxes Employee payroll Business owners should make sure the policy limits are sufficient to cover their company for more than a few days.
Options and endorsements to business income interruption coverage Contingent business interruption insurance also referred to as dependent properties Provides insurance coverage in the event the damage or destruction of non-owned property reduces or terminates the business owner's earnings. There are four types of entities that qualify as eligible dependent properties: Suppliers : Those contributing locations that supply the business owner with the parts, materials, or services necessary to manufacture its product or provide its service.
Macy's, etc.
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