Kajko, Weisman & Colasanti, LLP

Understanding some terminology in business interruption insurance

More than likely, you are going into business to make a profit. As you start your company, you commit to going to great lengths to make sure you set it up for success. You may have already purchased insurance policies to cover losses of property, expenses from liabilities and more. Another insurance product you may want to consider is business interruption insurance.

This type of insurance covers any income you may lose while you cannot run your business due to some catastrophe, such as a fire, flood or some other calamity. In order to help avoid any misunderstandings, miscommunications or disputes, it would be useful to better understand some of the common terminology in these policies.

Common language in business interruption insurance policies

As you review the policy you may purchase, you may see the following terminology:

  • Make sure you understand how your policy defines business income. Ordinarily, it is the net profit you would have made in the absence of whatever incident occurred that prevents you from operating out of your location.
  • The insurance company is only under obligation to pay you for actual loss sustained. In other words, whatever led to the interruption in your business, you must actually sustain financial losses.
  • You will only receive payments for the period of restoration, which means that your claim only covers the time it takes to repair the damage or replace the property. The coverage begins from the date of loss and ends when you can move back into the property.
  • Your policy may cover service interruption if you lose the use of a utility as part of your loss, with some exceptions and limitations, of course. 
  • Your policy may cover an extra expense you have due to your loss, but you must take steps to minimize these expenses.
  • If damage or loss from someone who provides you with supplies -- called the supplier, or someone you provide goods to -- called the receiver, interrupts your business, you may receive contingent business interruption benefits.
  • If you cannot operate your business due to an interruption by civil or military authority, you may be eligible for benefits.

You may also purchase an endorsement that provides you with benefits if another property near yours sustains damage that interrupts your business. As you can see, you need to review the policy closely to make sure that you receive the coverage you anticipate. Otherwise, you could find yourself without coverage in the event you sustain a loss.

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