What is Business Interruption Coverage?

This policy covers loss of gross profits or revenue as the case may be resulting due to a reduction in the turnover following a loss under the material damage policy (Fire or Property All Risk policy). There are four critical elements to business interruption insurance:

It is only triggered in three limited circumstances

  1. There should be a physical (material) damage to the premises covered under the base ( Fire or Property All Risks ) policy which leads to suspension of its business operations and as a consequence, reduces the turnover leading to drop in Gross Profit.
  2. There is physical damage to other property caused by a loss that would be covered under the company’s insurance policy, and that damage totally or partially prevents customers or employees from gaining access to the business.
  3. The government shuts down an area due to property damage caused by a peril covered by the company’s insurance policy that prevents customers or employees from gaining access to the premises.

Post Occurrence of the Insured Event

The policy normally has a time excess which means that the revenue loss for the first few days ( time excess ) is not covered.

Coverage commences specifically, after the waiting period expires, coverage is provided for lost net income, temporary relocation expenses (designed to reduce overall costs), and ongoing expenses such as payroll that enables businesses to continue paying employees rather than laying them off.

Business Interruption Insurance

The policy pays for loss of Gross Profits for the duration of the interruption subject to the indemnity period chosen by the insured while purchasing the policy. The indemnity period should be prudently selected and should reflect the maximum time for the business to come back to normalcy after a major loss.

This insurance provides vital protection when a business falls victim to circumstances outside of its control. The purpose of this coverage is to protect the business against losses arising from its inability to continue normal operations, and its inability to occupy its premises.

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