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What is business interruption insurance?

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If you are the owner of a small to medium sized enterprise, you have probably given serious consideration to your need for business insurance.

Typically, your concerns are likely to be about the risk of physical loss or damage to the premises from which you are operating your business, the equipment and plant you are using, the supplies and materials on which you rely, any stock you maintain, plus covering your property liability.

These are the concerns typically addressed in the building and contents insurance you arrange for your business. 

Business interruption

Insurance against the risk of loss or damage to such physical property is all well and good, but what about the effect that any such event might have on your business – if you had to stop trading, for instance, or severely curtail your operations? 

That seems a recipe for the loss of income you normally expect from your business activities. Any loss of income naturally affects your bottom line and the profit your business is able to make. Any way of indemnifying yourself against such loss, therefore, is likely to be very welcome.

Fortunately, there is an answer – and it goes by the self-explanatory and particularly apt name of business interruption insurance.

What does it cover?

The Association of British Insurers (ABI) offers a general overview of the principles and function of business interruption insurance.

Effectively, the cover aims to restore your business to the same trading position your enjoyed before some unexpected event took place.

Examples of such unexpected events might include: 

  • damage to the premises, equipment or supplies caused by the major insured risks such as fire, flooding, storm damage, impacts, vandalism and theft; 
  • the breakdown of essential plant or equipment; 
  • loss of income resulting from the inability of customers to gain access to your premises might also be covered by some business interruption policies; and
  • some policies may also extend to damage which occurred at your supplier’s business premises.

Things to consider

Arranging business interruption is typically simple and straight forward, often being an optional extra to your general business insurance or building and contents cover.

The amount you may claim on any such business interruption policy is of course determined by the amount you pay in premiums. When deciding the level of cover you need, therefore, you might want to calculate:

  • the trading income you stand to lose on a month by month business in the event of a total shutdown;
  • the length of time it might take to restore the business to its previous position; and
  • the length of time you might need the compensation for any business interruption to last – for example, 12 months, 24 months or longer.

What type of business is it suitable for?

Business interruption insurance is suitable for and used as a protection by enterprises of every shade and hue – from the modest to the mighty.

As a smaller business, for example, you might not have the reserves of cash to keep things running if operations temporarily need to shut down following some unexpected incident. Your business might also depend on relatively few major customers whom you cannot afford to lose.

Compensation

If you make a claim under your business interruption insurance policy, this typically provides compensation for any loss of (pre-tax) profits and the associated increased costs that your business might incur as a result of the unexpected event – accountants’ or solicitors’ fees for example.

If you want to give your business a sporting chance of recovering from and making up lost income following an unexpected event leading to a temporary shutdown, you might want to consider the benefits and advantages of business interruption insurance. For example, business interruption insurance from UKinsuranceNET can cover your annual profit. With our affordable cover, you can protect yourself for up to three years. 

Finally, please read our article: Why you should plan for the loss of your Commercial Property that goes more in depth about the type of unexpected events that could seriously damage your business income, as well as providing tips on being prepared. 

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