Business interruptions can occur unexpectedly due to factors such as cyberattacks, natural disasters, or terrorist acts. Any time you shut down your business for whatever reason, you risk losing income during the period that your business remains closed. This is where business interruption insurance in CA comes into play.
Also referred to as business income insurance, this policy replaces the revenue lost if you have to close your business temporarily, following a covered peril. If, for example, a fire breaks out at your premises burning your belongings down, you will have to close your business for some time until you can replace the damaged property. In such a case, business interruption insurance will reimburse you for the income you lose during the closure.
What Does Business Interruption Insurance Cover?
A whopping 40% of businesses in the U.S. close permanently after a catastrophe. Worse still, 25% of those that manage to reopen end up failing within the first year. A lack of finances is one of the greatest contributors to this downfall. Thankfully, the right business interruption insurance can help you significantly. This policy typically provides coverage for any temporary closure that emanates from a covered peril. This means that in case you close your business for personal reasons, say, going on vacation abroad, the insurance company will likely deny you coverage. Moreover, this policy only provides coverage during the stipulated restoration period. It’s important to note that the restoration period begins with 30 days but can be extended up to a year (360 days) using an endorsement. Also, it usually takes anywhere from 48 to 72 hours for the policy to kick in after an insured event. California business interruption insurance covers the following:
- Lost income
- Loan payment owed during the restoration period
- Rent and mortgage payments for the premises
- Training costs for employees
- Employee wages
- Relocation expenses
How Much Coverage Do You Need?
There’s no straightforward and simple answer to this question, particularly because business interruption insurance needs vary for different businesses. However, the best way to determine the required coverage limit is to use your current gross income to estimate future profits. Near accurate estimation is crucial, as this will save you from paying for expenses out of pocket in case of a major loss. To determine the right amount of coverage, you will also need to consider the amount of time it would take to reopen your business after a disaster, any risk mitigation measures in place, and whether you can temporarily relocate your business.
Business Interruption Insurance Exclusions
The following are not covered by this policy:
- Closure following the outbreak of an infectious disease
- Some disasters, including floods and earthquakes
- Undocumented income
Even for the covered losses, the insurance company only provides coverage up to certain limits. You can always raise the limits depending on your coverage needs, although you will likely pay higher premiums for this.
How to Get Business Interruption Coverage?
Only about one-third of U.S. businesses have business interruption insurance coverage. Considering how important this coverage is, ensure you purchase it to protect your business from eventualities. To get the right business interruption insurance coverage, you simply need to talk to a reputable insurance agent. You can also compare quotes from different insurance providers and settle on one that serves your business needs.