Starting your own business can be an exciting chapter in getting your dream company in motion. However, no matter how hard you work to get all your plans and processes in place, the reality is that even the most seemingly minor event can completely disrupt your company, profits, and the job security of your employees without investing in business insurance.
It’s this type of risk that makes it essential to have business interruption insurance in place as part of your general risk management strategy. What is business interruption insurance? This post takes a closer look at this answer and also highlights the common mistakes you should avoid when adding this cover to your insurance portfolio.
Understanding the Business Interruption Insurance Concept
At its core, business interruption insurance covers lost revenue, profits, or business income when the business can’t operate as normal. Keep in mind that if an unforeseen event is preventing your business from trading or functioning as usual, you will not be generating the profits needed to pay rent, mortgage, employee salaries, or even buy stock or materials from your vendors.
When this happens, business interruption insurance strives to cover the loss of income that the business has suffered. The goal here is to keep the business functioning as normally as possible in financial terms to avoid defaulting on rent, mortgage, or employee salaries.
The factors covered by your business interruption insurance depend largely on the type of policy option you’ve selected. For the most part, you can expect to receive coverage for the following:
- Monthly income loss (calculations are based on previous financial statements)
- General operating expenses (fixed costs such as utility bills and property rent or mortgage)
- Loan and tax payments
- Employee wages (only specific benefits may apply here)
- Additional expenses to repair premises to get the business running again (relocation, temporary rental, equipment repair)
When taking out this insurance, it’s essential to speak to your insurance broker about the various inclusions and exclusions. This will ensure that you have the right policy for your business.
Simple Mistakes that Will Keep Your Coverage Relevant
If you’re taking business insurance out for the first time, it’s essential to know that about 70% of start-upshave inadequate insurance cover. This means that these companies are underinsured, and they won’t be able to withstand a significant loss that forces them to close their doors. With this in mind, our experts have compiled a list of the top mistakes to avoid when you’re taking out business insurance for the first time.
Mistake 1: Don’t Underestimate Coverage Needs
The number one mistake that first-time buyers make is underestimating the amount of insurance they need. This happens when a business owner doesn’t anticipate the full financial extent of how an instance such as a natural disaster can affect the day-to-day running of their business. It’s essential to know that operational interruptions involve more than only being covered for lost revenue.
Our experts recommend enlisting an insurance broker to help you find the right insurance coverage for your business and industry type. A proper assessment of your business risks is essential to have the best coverage when you need it.
Mistake 2: Not Reading the Fine Print
If you’ve ever received a contract and thought, “I’m not reading all that,” then you’re at risk of making this mistake. No matter how pressed for time you are, it’s essential to read through all the terms and conditions of your insurance coverage before signing.
This is essential because business interruption insurance policies can vary between providers. Aspects such as length of coverage, limits, inclusions and exclusions, and overall coverage criteria are tailored to suit your industry and policy type. This means it’s essential to read and understand all these factors, yes, the dreaded fine print, before signing. Staying proactive and up to date with your policy ensures that you always have assurance that your business will be covered in any eventuality.
Mistake 3: Not Supplying the Right Documentation
Another key mistake that first-time insurance buyers make is delaying to supply of the right documentation at claim time. Since your claim involves receiving the finances needed for crucial aspects such as rent, salaries, and paying vendors, it’s essential to have your claim processed as quickly as possible.
Avoid having to look for the necessary documents by keeping a detailed record of all your finances. Our experts recommend keeping these records digitally off-site. For instance, keeping your records only on paper in your business can result in them getting lost or damaged. This is especially the case if your catastrophe involves property damage. Having your documents in a cloud-based platform will make them easy to access at claim time.
Final Thoughts
No matter how big or small your business is, every new business owner should invest in business interruption insurance. With this type of cover, you can look forward to coverage that will protect you when your normal business income is affected.
Having the right business insurance in place ensures that you will be able to pay your premises rent and keep employee salaries up to date. Use our guidelines to get the best coverage for your business type!
