Business Interruption Insurance: Your ‘Get Out of Jail Free’ Card

Unforeseen events have the potential to cripple your business and effectively ‘lock up’ operations. Business interruption insurance can provide both peace of mind and a much needed financial ‘get out of jail free’ card when you need it most.

Australia may be the lucky country, but sometimes your business just runs out of luck!

Exposure to extreme weather, natural disasters and criminal tampering are things that all businesses have in common. Stuff just happens. Calamities and misfortune, both natural and man-made, strike everyday businesses both small and large, and can wreak havoc on everyone from sole traders working out of their garage to behemoth corporations with premises the size of small cities.

When a catastrophe does occur it is often the interference to trading capabilities, and not the event itself, that has the real potential to bring a business to its knees. Business interruption insurance is designed to provide compensation for the financial impact of these events, and place your business in the same financial position it was before the chaos.

So what exactly does it cover you for? This will vary on your policy and its inclusions, some of which are optional. If your business was forced to temporarily close down, however, a typical business interruption policy might cover below:

• Turnover – If trading operations are limited by the event, the turnover that your business would have earned will be paid out as part of your claim. This would enable the business to maintain wage payments, rent, loan repayment s etc.
• Relocation – If what most policies call an ‘Additional Increase Cost of Working’ is included, Business Interruption insurance may take care of both the moving costs and rent if a new property is required.
• Limited Transit – Refers to damage to contents (including stock) while they are in transit in any vehicle owned or operated by you anywhere in Australia away from your location.
• Restoration of Records – This will cover the clerical and professional costs involved in re-writing necessary business ‘records and documents following loss or damage from an insured event.

Business interruption insurance policies are specific, however, and don’t cover every expense you’ll incur during the recovery period. Some of the important things that usually aren’t covered are:

• Undocumented income – Make sure revenue is documented, preferably offsite, so that you can accurately establish your loss.
• Losses beyond the indemnity period – The indemnity period is a period which you select when you purchase the policy.
• Non-covered damages and voluntary closures – Be aware of the type of events that are covered in your policy. Flood, for example, is not included in most policies. Neither are voluntary interruptions, such as family vacations!

The inclusions and exclusions above are typical, but not definite, and the onus really is on the insured party to know what their policy covers. Reading the fine print in your policy is ‘best practice’ management, and a big part of being a responsible business owner.

Whilst a good Business Interruption policy can help your business to get back on its feet, it won’t cover every possible event, nor will it pay every possible expense. But it should be a vital element in your wider disaster recovery plan – a plan that should include both a broader insurance package and (crucially!) a clear guideline for how your business would react and recover after a disaster event.

If something does happen and your place of business is affected, you’ll need to ask yourself two very important questions. Do I have Business Interruption insurance? And, are both the property and the cause of the event included in the coverage?

If the answer to both is ‘yes’, your business is already on its way to recovery. Just contact your provider, and let your ‘Get Out Of Jail Free’ card do its job.