When you buy a business owners policy (BOP) or other form of commercial insurance, one of the critical components of your coverage will likely be business interruption insurance. This is an important benefit that accounts for the fact that even though you might face a halt in operations, loss of income and ongoing overhead expenses following a problem in your business, you still deserve to remain solvent. Therefore, it’s instrumental in helping every business minimize the overall effect of an unexpected, unavoidable problem.

Business interruption insurance can assist you in numerous ways, and at a time when you likely desperately need help. However, it does have its limits. Let’s take a look at how this coverage works.

What benefit does business interruption coverage provide?

When something happens in your business, there’s a chance that you might have to halt operations for the time being. For example, if a fire damages your restaurant, then you will probably have to undergo several weeks of repairs before you can reopen.

During this time, your source of revenue—your diners—will disappear. However, you will still face ongoing expenses that you’ll have to pay. These might include your mortgage or rent, utility & vendor fees, and even payroll. Therefore, you might begin to face widening debts and loss of net profit just as you try to recover from a problem you couldn’t have predicted. Business interruption insurance is designed to help you cover these costs.

Usually, it will supplement:

• Lost income as a result of the shutdown. Your settlement is calculated based on your pre-loss earnings.
• Extra expenses that either arise or must continue to be paid despite the shutdown. For example, this coverage can help you make payroll even though you are not open. Or, if you need to temporarily relocate your operations, then coverage can also pay for your temporary rent.

What are the limits of this coverage?

Your business interruption coverage is just one link in the chain of a comprehensive business insurance portfolio. It won’t cover costs of property damage, liability lawsuits or other unexpected problems that should be insured by different types of coverage.

Additionally, your policy will generally institute both a maximum coverage limit and a time limit on your coverage, called a restoration period.

Generally, you must wait a certain number of days (such as 72 hours) before filing a claim for business interruption insurance. However, once the claim is filed, your policy will generally only pay for a certain number of weeks or months. Therefore, if you don’t reopen your business before this restoration period ends, then your benefits will expire.

With the help of your commercial insurance agent, you can determine exactly how to structure your business interruption insurance to your advantage. With the right benefits, you won’t have to worry about the potential ramifications of any number of problems.