In his recent blog post on disaster planning for businesses, Foley associate Nicholas E. Williams noted: “Business interruption insurance, which covers the loss of income suffered by a business after a disaster, plays an important part in disaster planning.” In fact, it can be as important to a manufacturer’s survival as fire insurance. While most people would never consider operating a business without the protection of insurance covering property damage, many businesses overlook how they would manage if property damage to their business rendered it temporarily unusable. That is where business interruption insurance comes in.
Business interruption insurance provides funds to make up the difference between a manufacturer’s normal income and its income during and immediately after a forced shutdown. While a property damage insurance policy will cover the cost to repair or replace buildings, equipment, and inventory, you must either include special wording to cover the loss of income during downtimes, or secure a separate business interruption policy to cover the lost income. Business interruption insurance covers the revenue you would have earned, based on your financial records, had the disaster not occurred. The policy also covers fixed operating expenses, such as electricity, taxes, and mortgage payments, which continue even though business activities have come to a temporary halt.
In order to get the most out of your business interruption insurance, companies should keep the following guidelines in mind: