Business interruption insurance is very important coverage that people often forget to purchase when starting a company. You expect to run your company every day to generate income, but there could be circumstances outside of your control that force you to cease operating.
Natural disasters, supply chain disruptions and even local road construction could force a temporary but expensive closure of your company. If you can’t operate for several weeks or months, the company could become insolvent and never recover from the financial fallout of the closure.
Business interruption insurance helps ensure that your business can reopen its doors when the situation becomes favorable again. How do you determine how much coverage you need?
Estimate your likely operating expenses
Business interruption insurance helps cover your financial obligations so that the company doesn’t wind up in debt when it cannot generate revenue. The amount you pay for rent or toward mortgage every month will be one expense you absolutely need to cover. The wages for salaried workers and the benefits that you provide for them are another consideration. You also will need to find a way to cover the minimum payments on revolving lines of credit and financed business equipment.
As with other forms of insurance, it is typically a good decision to invest in as much as you might reasonably need, rather than focusing on keeping the cost of the policy as cheap as possible.
Know that you won’t always get the maximum coverage possible
One of the reasons you want to carry sufficient coverage is that the insurance company may try to limit what they pay when you make a claim. Although there are state and federal laws that clearly outline how insurance providers should pay claims, they will often look for any excuse to minimize the benefits they actually provide the policyholders.
Sometimes, insurance adjusters will even inappropriately delay claims, deny valid claims or offer settlements that are unreasonably low. You need to understand your rights as a policyholder and fight back if the insurance company tries to deny you the coverage that you have paid for since starting your company.
Carrying enough insurance and being able to recognize bad faith insurance practices when they happen can help you protect your business during an unexpected interruption in operations.