How long could your business survive with no income?

After a damaging fire or flood, you need to keep paying employees while you're out of operation. Take out business interruption insurance today to cover you for tomorrow.

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Business Interruption Insurance

When running a small business, there’s often a fine line between profits and losses. We rely on the income our business makes to pay staff, rent and buy supplies, just to name a few overheads. But if disaster strikes and that income stops flowing in, are we prepared enough to keep the business afloat? If, for example, you own a small shop, a fire or flood can be catastrophic. Many people believe that a standard business insurance policy will have them covered, and it’s true that most policies will cover the costs of repairing your building or replacing your damaged goods. But what about revenue you’re no longer making while you’re on the road to recovery? This can be a killer for small businesses if they’re not properly insured. That’s where business interruption insurance comes in.

In This Guide:

What is business interruption insurance?

Business interruption insurance covers you against loss of financial income after an unexpected event that you are insured against. It can be vital if your shop or restaurant or any other type of business is damaged in a fire or flood, and it can be the difference between survival and going under.

While other business insurance policies should cover you for the cost of any repairs needed to your building, or any damage or loss of sellable goods, they won’t cover you for any loss of income or profit while you’re out of business. However, business interruption insurance can cover you for any lost revenue while you’re not able to trade. It’s intended to keep your business afloat and in the same financial position it would have been in had any unforeseen events not happened.

Cover from Churchill Expert

We’ve teamed up with Churchill Expert to bring you affordable business insurance cover. Churchill Expert can arrange an NIG business insurance product, which includes business interruption as standard and is available to owners of businesses of all sizes.

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What does business interruption insurance cover?

There are several types of event that you could be covered for with a business interruption insurance policy. The most common of these events are fires and floods. Damage by fire can be catastrophic. Not only will it destroy your contents and the goods you sell, which should be covered by your standard business insurance policy, but it can take weeks or even months to repair your shop, restaurant or office and get it back to the same condition it was in before.

The same goes for flooding. While most people think of heavy storms and overflowing rivers as the main cause of floods, escape of water from a burst pipe could also pose a risk. It can take up to six months for your property to be usable again after a serious flood. In that time, you could lose valuable revenue, staff and customers.

Business interruption insurance can also cover you for any lost revenue if essential equipment breaks down. For example, if you run a factory and a vital piece of machinery stops working, any loss of trade can be covered while you’re getting the equipment repaired or replaced. Any lost trade after a robbery or vandalism will also usually be covered.

You will also usually be covered if any unforeseen event such as a fire or flood affects your supplier, preventing you from being able to buy and thus sell your stock. Some policies will also cover you if customers are unable to reach your business premises, due to unfortunate events such as emergency works or flooded roads, causing a denial of access to the property.

There are some types of event, however, that you wouldn’t be covered for with a standard business interruption insurance policy. These include any loss to business caused by a cyber or terrorist attack. However, you can be covered for these types of event through other specialist business insurance policies.

How do I make a claim?

When it comes to making a claim on your business interruption insurance, you will have to provide evidence of how much business you are losing. You will need to show your insurer how your business normally performs, and then any expected earnings over the time you’re not able to trade. For this reason, you can’t just give them your revenue figures for the previous year. You will need to factor in any changes in income that would come about from seasonal differences or any expansion or downsize of your business.

To help you with this process, its advisable to get the help of an insurance professional or accountant. This shouldn’t set you back though, as the cost of hiring a professional should also be covered in your business interruption insurance policy.

Do I need business interruption insurance?

Business interruption insurance is not required by law, but failure to get insured could be financially crippling for your business if something does happen. There are a few factors to consider when deciding whether a business interruption insurance policy is right for your business.

You need to assess how much a damaging fire or flood will affect your ability to trade. If you store all your stock in your shop or restaurant and rely on it to do business, then a business interruption insurance policy could be vital if something happens to your goods. However, if you do most of your work online, it probably won’t take long to get a replacement computer if it’s damaged by fire or flood, and you could therefore get back to business pretty swiftly. In these cases, it may not be suitable to pay for business interruption insurance.

You should also consider how much you value your staff and customers. If your workplace is out of action for a prolonged period, will you be able to keep your staff happy by continuing to pay them? A business interruption insurance policy will help you cover this, but without one you could end up seeing your valuable staff members jump ship.

The same goes for customers. If your business relies on certain customers, for example if you’re a wholesale supplier, how will you be affected if they decide to go somewhere else? It’s all a part of assessing how a temporary loss of your premises will affect your business’s ability to survive.