The effects that a disaster has on a business can last long after the disaster itself is over. Interruptions in a business’ operations can reduce revenue, sometimes completely shutting down any income streams. Without funds coming in, most Massachusetts businesses would struggle to remain financially solvent.
Business interruption insurance is a specialized form of insurance that helps guard against covered decreases in revenue. Should a covered incident directly cause a decrease in revenue, a policy will typically provide payments to compensate for the lost income.
Most of the perils that business income insurance protects against are generally similar to those that commercial property policies offer coverage for. A policy, for example, might cover fires, burglaries, and windstorms, among other incidents. (The exact protections that a particular policy provides can vary.)
There is one particular risk that certain business income policies offer coverage for and isn’t normally mentioned in commercial property policies. Contingent business income policies may extend protection to incidents that impact key suppliers’ or vendors’ operations.
If for example, a manufacturer had to halt production because a supplier’s forge was destroyed, a contingent business income policy might provide the manufacturer with payments for their lost sales. Similarly, a stadium that contracted with a specific food vendor might receive compensation for lost concession sales if a covered incident prevented the vendor from selling at a game.
Unfortunately, business interruption policies generally don’t offer protection against bad business decisions that lead to decreases in sales. For instance, policies usually don’t cover ineffective advertising campaigns or poor location choices. Moreover, policies typically don’t cover seasonal variations in sales or similar revenue fluctuations.
Business income insurance is primarily designed to help businesses protect themselves from uncontrollable and unforeseen incidents, and most of the risks it covers meet both these criteria.
Many businesses in Massachusetts may want to invest in business interruption policy. For, almost any business could have something happen that caused a decrease in sales, and few businesses could afford a long-term decrease in revenue. After all, a disaster won’t stop bills from being due.
There are several different types of business interruption policies:
Which of these any given business should get depends on the financial position of the business and type of work it does.
For instance, a restaurant might not need a contingent business interruption policy if it can purchase food from several suppliers. It may, however, want an extended business interruption policy so it continues to receive payments after opening. It can take patrons several months to realize an eatery has reopened.
Conversely, the manufacturer mentioned above might need a contingent business interruption policy, but it might not have use for an extended policy. For, the manufacturer might be able to begin shipping products and charging customers as soon as operations resume.
For help finding business interruption insurance, businesses should contact an independent insurance agent. An agent will be able to help a business determine what types of business interruption are appropriate for its situation, and they can request quotes for policies from many of the insurers that offer business income insurance in Massachusetts.