Whether you’re running a new start up or an established company, you’ve worked hard to establish your business. Imagine what would happen to that business if it were forced to close because of damage by a natural disaster.
Could you rely on the bank to be understanding and defer your loan repayments for a few months? Would your suppliers cancel their invoices until you can get back on your feet?
Unfortunately, disaster can strike at any time. When it strikes, the consequences for businesses can be devastating. Daily operations can be forced to slow down or stop altogether. Profits quickly erode, customers move to competitors, suppliers find new partners and the costs of repairs, fixed costs and other costs to stay operational can drain company resources.
What is business income insurance?
Business income insurance, also known as business interruption insurance, is an insurance policy type that protects against the loss of income a business experiences due to some kind of insured accident or disaster.
Different to property insurance, business income insurance protects the profits that would have been earned if the business was operating normally. This policy type is intended to help a business maintain the same financial position it would been in had the disaster not occurred.
Business income protection insurance is not sold as a stand-alone policy. Instead it is usually aligned to a property insurance policy or included in a comprehensive package policy. Typical points of coverage within business income insurance policies include:
- profits that would have been earned during the period the business was out of action
- fixed costs incurred even though the business is not operational
- expenses sustained around relocating to a temporary location to enable business operations to continue
- interruption costs associated with disruption to your telecommunication, gas, water and power service providers by an insured event
- other ‘reasonable expenses’ that enable a business to continue operating while property and premises are being repaired.
Aside from these common coverage points, additional coverage can be added to your policy for an additional premium.
Business income insurance policies generally continue to pay for reduced profits after a business has reopened but is not yet performing at sales levels experienced prior to the covered incident. This period of cover is known as the Indemnity Period which should be carefully assessed when the policy is being designed.
When making a claim against a business income insurance policy, your business will need to supply information to prove the profit levels in the claim. Ahead of any accident, incident or disaster occurring, it is important to store copies of important business documentation off-site so they are not destroyed and can be easily accessed. Your insurer may request other records too. Common requests include proof of rent, payroll and sales receipts.
Who needs business income insurance?
No matter what size business you’re running, every business owner should consider insuring their operation against income losses and the extra costs associated with any efforts to maintain the turnover of the business. It is hard work to run a business. It makes sense to protect it.
Businesses who should particularly consider business income insurance include those whose operations rely on expensive plant and machinery, who need physical assets, equipment and properties to run the business or who are located in areas known to experience natural disasters.
Take action to protect your business
It is impossible to expect the unexpected. But it is possible to protect your business against the unexpected. That’s why it is important to talk to experts familiar with the types of accidents, disasters and incidents most commonly experienced by businesses. Our network of brokers is knowledgeable, experienced and quick at answering questions from business owners to help ensure every company, no matter how big or small, has the coverage it needs.
To find out more, contact your local adviser or contact Amicus today.
Article written by NZbrokers
Article Posted August 15th 2019 by NZbrokers