Business interruption insurance is a crucial component of protecting your company from financial losses caused by unforeseen events. If a disaster or accident forces your business to temporarily close, this insurance can help cover lost income and ongoing expenses. Filing a business interruption claim, however, can be complex. Here are seven important things you need to know about business interruption insurance claims.
1. Understand What Business Interruption Insurance Covers
- Key Points: Business interruption insurance typically covers income losses due to direct physical damage to your property, such as from fire, storms, or vandalism. It also covers operational expenses like rent, utilities, and employee wages during the downtime.
- What to Know: Ensure you understand the specific coverage terms of your policy. Some policies may include coverage for disruptions due to natural disasters, while others may exclude certain events like floods or pandemics.
2. There is a Waiting Period Before Coverage Starts
- Key Points: Most business interruption policies have a waiting period (often 48 to 72 hours) before coverage kicks in. This means the insurance won’t cover the first few days after the event that causes the disruption.
- What to Know: Be aware of the waiting period in your policy, and plan for how to manage your business’s finances during this gap.
3. Proper Documentation is Crucial
- Key Points: To file a successful business interruption claim, you must provide detailed documentation. This includes financial records, income statements, tax returns, payroll records, and proof of ongoing expenses.
- What to Know: Accurate and up-to-date financial records are critical. Prepare to show pre-loss income trends and how the interruption directly impacted your business’s finances. Keeping thorough records can help expedite your claim.
4. Your Policy May Include a Period of Restoration
- Key Points: The period of restoration is the time frame during which the insurance company will cover your lost income and expenses. It usually starts when the damage occurs and ends when the property is repaired or replaced, or when operations resume.
- What to Know: The length of the restoration period may be limited by the policy, so ensure that the time frame aligns with the typical duration needed to repair your business premises or equipment. Understand that delays beyond the period of restoration may not be covered.
5. Business Interruption Claims May Include Extra Expenses
- Key Points: Many business interruption policies offer coverage for “extra expenses,” which are additional costs incurred to minimize the interruption. These could include renting temporary office space, purchasing new equipment, or expediting repairs.
- What to Know: Ensure that your policy includes coverage for extra expenses, and keep detailed receipts and records of any costs incurred to reduce your downtime. This can help you maximize your claim.
6. Contingent Business Interruption Insurance Might Be Available
- Key Points: Contingent business interruption insurance covers income losses resulting from disruptions to your suppliers or customers, even if your business hasn’t suffered direct physical damage.
- What to Know: If your business relies heavily on certain suppliers or customers, this coverage can be invaluable. Review your policy to see if you have contingent coverage, especially if you’re part of a supply chain that’s prone to disruptions.
7. Expert Assistance Can Help Maximize Your Claim
- Key Points: Business interruption claims are complex and often require expert knowledge to interpret the policy and calculate the losses. Hiring a public adjuster or forensic accountant can help ensure that all losses and expenses are properly documented and presented to the insurer.
- What to Know: Experts can help you navigate the claim process, assess the true value of your losses, and negotiate with the insurance company to maximize your payout. While they may charge a fee, the potential increase in your settlement often outweighs the cost.
Conclusion
Filing a business interruption insurance claim can be challenging, but understanding your coverage, documenting losses, and seeking professional help can lead to a successful outcome. Keep these seven important points in mind to ensure your business gets the financial support it needs during difficult times.
