Business Interruption Cover
What is Business Continuation Insurance?
Business continuation insurance, or business interruption insurance, is an important cover that helps a business survive a major disruption. In the event your operations are forced to stop due to unexpected damage or disaster, this insurance provides funds to replace lost income and pay ongoing expenses. It aims to put your business in the same financial position it would have been in if no interruption had occurred.
Business interruption cover steps in after events like fire, flood, or storm damage that force a closure. While property insurance covers repairs, it doesn’t replace lost income. This cover fills the gap, helping pay for lost profits, wages, and fixed costs until you’re up and running again.
What Does Business Interruption Insurance Cover?
Every policy can differ, but generally business interruption covers the following:
- Lost Income: Reimburses the profit your business would have earned during the period of forced closure or reduced operations. This is usually based on your historical earnings and growth trends.
- Fixed Operating Expenses: Covers ongoing overheads that still need to be paid even if your business is temporarily closed.
- Employee Wages: Allows you to continue paying your staff even when there’s no work happening. This is crucial to retain employees so that you have a workforce ready to go when you reopen.
- Temporary Relocation Costs: If you need to set up a temporary workspace to keep operating, the policy may cover those extra costs.
- Additional Increased Costs of Working: Any reasonable extra expenses that help you reduce the overall impact of the interruption. For example, urgent equipment hire or outsourcing some work to meet key client orders could be covered if it ultimately reduces the loss.
The goal is to ensure your business can meet its financial obligations and remain viable while recovering from a setback.
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Why Do You Need Business Continuation Insurance?
Consider this startling fact: many businesses that suffer a major disaster never reopen because they can’t survive the downtime. Even if you have property insurance for physical damage, the loss of income can be crippling.
Here are some scenarios and reasons highlighting the importance of business interruption cover:
- Surviving a Complete Shutdown: Imagine your café had to close for three months due to an electrical fire. You still have to pay rent, utilities and perhaps loan repayments on the fit-outs, despite no money coming in. Continuation insurance would provide cash to cover those expenses and even compensate for the profits you would have made, so you can reopen without massive losses.
- Maintaining Market Position: If you’re unable to serve your customers, even for a short time, there’s a risk they might go elsewhere permanently. With the financial support from insurance, you could, for instance, fund a marketing campaign or offer special promotions when you reopen to regain customer loyalty and prevent competitors from taking your market share.
- Protecting Your Personal Income: For many small business owners, the business is their primary source of personal income. An interruption policy effectively ensures you can still draw a salary or cover your personal expenses because the business is being compensated for lost profit.
- Avoiding Insolvency: Fixed costs like loan repayments won’t wait for you to recover. If you default on loans or cannot pay suppliers, your credit rating and relationships suffer. Worst case, the business might face insolvency. Business insurance cover supplies the necessary cash flow to avoid missing payments and keep creditors at bay during the crisis.
Questions to Assess Your Risk
- How long could we survive without revenue?
- What if you couldn’t pay yourself a salary?
- Can you afford to lose staff?
- What about any ongoing bills?
- Will customers wait for you in today’s fast-paced market?
If you’re unsure about the answers, business continuation insurance can step in and carry the weight when things go wrong.
Business Continuation Insurance in New Zealand
Common causes of business interruption claims include natural disasters, fires, and localised events like building evacuations. When arranging cover, it’s important to choose an appropriate indemnity period and ensure the sum insured reflects your actual operating profits and expenses.
Capital Advice can help you determine the right coverage for your policy. We’ll consider factors like how quickly you could relocate or rebuild, whether you have backup systems in place, and the nature of your industry. Our advisers ensure that, in the event of a claim, you truly have the continuity you’re counting on.
Ensure Your Business Stays Afloat in a Storm
Think of business continuation insurance as a life jacket for your business. You hope you never need it, but if you do, it could save everything. By receiving critical financial support during a closure, it gives you the chance to rebuild without losing what you’ve worked so hard to achieve.
If you’re unsure about your current coverage or want to explore adding business interruption to your risk management plan, Capital Advice is here to help. We’ll walk you through the options and find a policy that fits your budget and risk profile. Get in touch with Capital Advice Today.
