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30 October 2020

What is Business Interruption Insurance and Do I Need it?

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There is some uncertainty about what business interruption insurance is, what it covers and who would need it, especially considering recent events. At Brightside Insurance, we have put together this quick and simple guide explaining business interruption insurance to shed some light on the topic and help you to understand whether or not you need it.

What is Business Interruption Insurance?

The primary purpose of business interruption insurance is to cover your business for the for a variety of financial losse(s) sustained during a property claim . This differs from buildings insurance types, such as commercial property insurance, which will only cover physical damage to your business’s premises.

Regular buildings and contents insurances will often not cover financial losse(s) of income as a result of such damage, making additional business interruption insurance cover necessary.

Depending on the incident, having a business interruption cover in place could mean the difference between your business surviving or potentially going under due to unprotected losses.

Business Interruption Insurance cannot be taken out in isolation and it needs to be purchased alongside Property Damage cover. For example, purchased as part of a packaged policy such as Shop Insurance, Office Insurance, a Commercial Combined or Property Owners Insurance policy.

For most Business Interruption claims to be met, there has to be a loss suffered under the Property Damage section of the policy.

2. What is Covered by Business Interruption Insurance?

Business interruption insurance is designed to cover the loss of income, incurred by events after a insured loss under property damage section. Examples of these are:

  • Flooding
  • Explosions
  • Fires
  • Burst pipes
  • Physical impact, for example damage from a vehicle crashing into your premises
  • Theft of necessary equipment, such as cash registers
  • Vandalism
  • Severe storm

Regarding a business being closed by the COVID-19 pandemic qualifying as a claimable event on a business interruption insurance policy, this will usually depend on whether your policy has a Denial of Entry extension with a “Non-Damage” clause. If it does, a claim may potentially be possible in that event. For more information, please see our dedicated COVID-19 page.

Is Business Interruption Insurance a Legal Requirement?

No, business interruption insurance is not a legal requirement. Therefore, like all insurance policies that are not legally mandated, the responsibility is on you as a business owner to weigh up the risks for your own business’s situation.

It may be sensible to calculate your business’s outgoings and then consider how long you would be able to afford these costs in the scenario that your business no longer had income. This would give you an idea of whether your business being unable to trade for, say, 6 months, after needing to repair your premises following a flood is something it would be able to survive. If it could, then there is no legal requirement to take out business interruption insurance, so you may deem doing so to be unnecessary. However, some business owners would prefer to have a business interruption policy in place regardless just to have peace of mind and eliminate such survival worries in the event of a claimable scenario.

Business Interruption Indemnity Period

The indemnity period on a business interruption insurance policy is the length of time during which the income of your business is covered. Your business interruption policy will have a maximum indemnity period that the insurer will cover your income losses for. This usually lasts 12, 24 or 36 months, depending on which duration you choose when taking the policy out. This period will usually start from the date of the incident you are claiming for.
 

Who Needs Business Interruption Insurance?

When determining whether you need business interruption insurance, it will largely come down to whether a damaging event befalling your business would render your business unable to trade for a prolonged period.

For example, imagine you owned an electronics shop that housed a lot of stock and equipment, but was situated at close proximity to a river. Due to the higher risk of flooding and inventory being damaged or destroyed, it would be sensible to take out a business interruption insurance policy as such an event would likely impact trading for a considerable time.

Conversely, a self-employed sole trader who operates their entire business from just one laptop would be unlikely to need business interruption insurance. Even if their laptop were lost or damaged, it could likely be replaced with minimal financial loss before the business was up and running as before.

Have you determined that you and your business need business interruption insurance? At Brightside, we can help with our top insurance broking services. Explore our Commercial Property Insurances, such as Shop Insurance, and see how much you could get protected with a quote and additional business interruption insurance coverage today.

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