Operating a business comes with its own risks. While there are many insurance plans in place to help you through difficult times, there’s one kind that’s much lesser known – and it could substantially bolster your business.
A study by Zurich Insurance informs us that one out of four businesses in Australia weren’t aware of a Business Interruption Insurance, while only 40% actually had a Business Interruption Insurance in place.
This may have something to do with the cost of Business Interruption Insurance, but with the increase in natural disasters each year, you may want to consider this policy.
What is Business Interruption Insurance?
In the event of an emergency when your business has to temporarily shut down, Business Interruption Insurance covers the loss of income your business has suffered from. So, while Property Insurance covers damage to your property, Business Interruption Insurance covers the profits that would have been incurred in a business-as-usual scenario.
Take note, that much like Property Insurance, Business Interruption Insurance applies only when there’s a direct loss, damage or destruction to the property.
Moreover, this isn’t a stand-alone policy but an insurance that you get above your Property Insurance. You cannot have business insurance without property insurance, and it’s limited to what your property insurance offers. So, if your property insurance doesn’t cover earthquakes, your Business Insurance won’t, either.
What is covered under Business Interruption Insurance?
While Property Insurance is limited to damage to the physical property, Business Interruption Insurance also covers the following:
Profits. The profits that your business would have earned, had your business been operating as usual. You need to have documents in place to justify this, such as a record of the previous month’s income, past tax records, profit and loss statements, projected sales and expense sheets.
Fixed Costs. The operating costs and other costs that you incur even when your business is not running, based on previous expenses. This includes the rent and wages of your employees during downtime as well.
Temporary Relocation. All the costs incurred when your business has to relocate temporarily, including the operating costs from the temporary location. Some specific insurance plans even cover advertising to communicate that your business is temporary relocating.
Restoration. It covers not just the loss of business during time of restoration, but what’s required to repair and rebuild the property as well. It covers the entire period of restoration, even after the Insurance time period expires – provided the damage occurred while the Insurance was in place.
How to get a Business Interruption claim right
Calculating Business Interruption is the hard part, especially if your documents are not in order. Some complications arising from Business Insurance calculation may be
● Incomplete Records
● Inability to include seasonality and trends influencing your business
● Determining the exact level of sales that would have happened if business had gone on as usual
It is also essential to present your claim well. Your claim must include a complete calculation of the Business Insurance, as well as a brief covering letter providing an overview of your business locations, details of property damaged, as well as a timeline of important events.
Moreover, if your business is growing or accelerating, you may want to record the income for many months to correctly highlight this trend.
Limitations of Business Interruption Insurance
Your Business Insurance will not cover any event that your property insurance doesn’t cover. And if more than one business location has been impacted, you may have to create independent risk locations.
Moreover, there are time limits on business interruption as well. Be sure to consult an expert well-versed in limitations and exceptions for Business Insurance. They can also help you decide whether purchasing an extended business income coverage can be useful for you.
Hiring an Expert for Business Insurance solutions
At Ocfam Global Limited, we offer leading offshore consultancy services. While we help your business with company formation, fund set up, trust formation, setting up International bank accounts, immigration and visa services, we also have expertise in the most relevant Insurance for your business.
Contact us to help keep your documents ready at hand so you can make a valuable claim when you need it. We are also well-acquainted with local laws and jurisdictions and can advise you on the type of Business Insurance most valuable to your company. Reach out today for the best advice in the industry!