What is Business Interruption Cover?

Most small business owners like to prepare for unexpected events by insuring their premises, contents or stock. But have you thought about what would happen if you had to shut your doors for a few days, weeks or even months due to an insurable event, like fire, storm or theft? Would your business survive? How would you continue to pay for things like rent, utilities, staff wages and other business expenses? These expenses need to be paid regularly, whether your doors are open or not.

Business interruption provides cover for the loss of income and increased costs of operating your business caused by a specified insured event (such as property damage or fire). It’s designed to assist your business to recover from an insured event by paying ongoing expenses (such as wages or rent).

It is important to note that Business Interruption cover is an additional cover option available when you take out a Business Insurance policy. Fortunately, Business Insurance packages can be customised to only include the specific insurance products that are relevant to a particular business. Many Kiwi small business owners find that taking out a Business Insurance package is a sound financial decision.

Did you know?

In the unfortunate event that a catastrophe occurs, it can be the interference to trading capabilities, and not the event itself, that has the real potential to bring your business to its knees. Business interruption insurance is designed to provide compensation for the monetary impact of insured events and assist your business to recover.

What’s typically covered?

• Loss of turnover due to damage to your own premises as a result of an insured event
• Additional costs of working

What’s typically NOT covered?

• Undocumented income
• Losses due to labour strikes and changes in legislation
• Losses beyond the indemnity period
• Voluntary closures
• Losses due to breakdown in equipment or machinery

Things to consider

1. Do you have enough capital to meet your financial obligations if an insured event halted your business operations? Consider how much it would cost to continue paying for things like wages, loan repayments, rent and other bills.
2. How long could you potentially be out of business and how long could you continue to pay for these expenses? This will help you to determine the ‘indemnity period’, aka the period of time you wish to insure your business for loss of turnover. Small business owners often underestimate how long it can take to get their business back up and running following a major insured event.
3. Business Interruption insurance should be just one part of your wider disaster recovery plan – a plan that should include both a broader insurance package and a clear guideline for how your business would react and recover after a disaster event.