Despite popular belief, business interruption insurance doesn’t cover all interruptions to your business’ operations. In fact, there’s a lot business interruption coverage specifically doesn’t cover. Let’s take a look at this type of coverage so you can better understand what it means for your business.
How does business interruption coverage work?
Standard business interruption coverage is meant to supplement existing policies—it is not a stand-alone policy. Business interruption coverage comes into effect when something damages a piece of your business’s property that’s covered by your property insurance. If this damage forces you to cease operations, then business interruption coverage will replace some of your lost income.
How much of the lost income gets replaced depends on the claim and the policy’s limits. The coverage is intended to make up for income lost from the time the property is damaged until it can be replaced or restored, and business resumes as normal.
If there’s no property damage, however, there’s no business interruption coverage. Though there may be some exceptions to this rule, they’re very uncommon.
Many natural disasters cause power failure, and therefore interrupt a business’s usual operations. Power outages, however, rarely result from direct property damage. In most cases, natural disasters cause damage to the overall power grid, which means businesses can lose power without direct damage to their property. In these cases, the power outage by itself does not trigger business interruption insurance.
Depending on where your business is located and policies available, however, there are endorsements you can add to your policy to help trigger business interruption coverage during such events. It’s often called Off Premises Power Failure, though your insurance provider may have a different name for it. It comes into effect when there’s damage to your power company’s provider similar to what your property insurance covers for your business.
You should note, however, that the details of these endorsements vary greatly between insurance providers, so it’s important to discuss this with a trusted insurance advisor.
As you’re probably aware, most property coverage does not include flood insurance. Since business interruption coverage only comes into effect when there’s damage to property covered by your insurance, this means flooding generally doesn’t trigger business interruption insurance.
FEMA’s flood insurance program does not provide business interruption coverage, and non-standard companies who provide flood insurance with business interruption coverage are often prohibitively expensive.
In certain areas, a Difference in Conditions (DIC) Policy might be a more practical option. This coverage works by providing coverage for conditions different from what’s listed on the policy. Depending on various factors, adding this supplement might make flooding one of the triggers for business interruption coverage.
In all these situations, it’s important to discuss your coverage with a trusted insurance advisor. Only an expert can tell you exactly what options are available to you and whether or not you can afford them.
If you don’t have a trusted insurance advisor or would like a second opinion, feel free to reach out to us at D&A insurance!