Running a business can be challenging at the best of times but what happens when disaster strikes? Whether it be a freak weather event such as a snowstorm or flood, or an accident involving fire, gas leaks or a falling tree, businesses are not immune to “acts of god”. Damage to a workspace or storage unit can bring a business to a complete stop, wiping out turnover and potentially even damaging working relationships. Unfortunately, as we have seen in recent years, extreme weather is only becoming more commonplace in the UK and companies need to think about protecting themselves. This is where business interruption insurance comes in.
What is Business Interruption Insurance?
As the name suggests, business interruption insurance covers instances in which companies face interruption due to an unexpected event. Damage to working premises, equipment, product etc. can cause a loss of trade and further expense, this is where the insurance can help.
It’s important to note that business interruption insurance does not cover everything and you must check policies before signing up. For example, the majority of insurance providers who offer business interruption policies, will not cover losses due to pandemics. This is obviously a very prescient issue and one to keep in mind for the future.
Coverage
Just as with every type of insurance, business interruption policies have different types of coverage. The two main types of coverage offered are the increased costs of working and loss of income. Ideally you want to find a provider that offers both in a single package- again it’s important to do your research before settling on a specific policy.
Increased Costs of Working
Sometimes known as “additional expenditure”, the increased costs of working policy is a vital aspect of business interruption insurance. Should a disaster happen, and your business is affected, you may need to pay in order to ensure you can continue to trade, these additional costs are what are covered by this policy. For example, your workplace has been flooded and will be out of action for weeks or months, you will therefore need to pay to secure another place to work. What if vital equipment has been damaged and you need to pay to lease new equipment? These additional costs can be crippling and that’s were business interruption insurance acts as a lifeline.
Loss of Income
The other aspect of business interruption insurance is the actual loss of income incurred when an unforeseeable event affects your ability to trade. For example, the building that houses your stock is out of bounds due to a gas leak and you’re unable to fulfil orders. Every day that you’re unable to trade is a day that you’re unable to make money and therefore you’re losing income. This aspect of business interruption insurance will reimburse any income lost due to a specific unexpected event, covered by the policy.
Fine Print
It’s easy to see why these types of insurance policies are so popular, offering peace of mind that you and your business are protected against unknown and unforeseeable damage. However, it’s important to check the fine print and have a complete understanding of these types of policies before signing up. For example, you’ll often have to choose an indemnity period, which is the time-frame in which the policy will cover business interruption. These usually range from 12 months to a number of years. There will be a trade off between longer indemnity periods and the cost of the policy and only the business owner themselves can make an informed decision on what time period is best for them.
It’s also worth noting that the majority of business interruption insurance policies will include a material damage proviso. This compels the business owner to take out standard material damage insurance policies concurrent with their business interruption insurance. Therefore, should equipment or premises be damaged, these policies will cover repairs or replacement, negating the effect of business interruption.
Whether it’s choosing the correct insurance policy or understanding the nuances of taxation, the financial aspects of running a business can be stressful. Luckily, the team at Taxation Investigation are on hand to help, with expert advice and comprehensive services.
