Since the year 2000, at least twenty-eight tropical or subtropical cyclones have affected the state of Louisiana, and this figure does not include the common severe weather that we experience countless times each year. Thus, it’s more likely than not that a Louisiana small business will be temporarily closed due to weather, fire, storms or some other circumstance during its lifetime.
What is Business Interruption Insurance?
Imagine that your local business is thriving, but due to a severe storm causing property damage to your office, you have to close down to repair bringing your business to a grinding halt. While you most likely have insurance to cover the cost to repair your building, that insurance will not cover the loss of revenue or fixed expenses. Business Interruption Insurance is a type of coverage which is usually offered, but not always selected by an insured. Also known as Business Income Insurance, this type of coverage can protect a business that is forced to close by reimbursing the business owner for a variety of costs and losses, namely:
- Lost Revenue
- Fixed Expenses such as rent or payroll
- Relocation Expenses
How Does Business Interruption Insurance Work?
Most Business Interruption policies require that a certain amount of time pass before the coverage begins. In Louisiana, it is usually seven (7) business days. For example, a temporary power outage of a few hours or even a few days may not be significant enough to trigger the coverage. After the waiting period elapses, the business owner will contact its insurer and initiate a business interruption claim. Subsequently, the insurer will typically ask for financial information such as past tax returns and projected sales documents so that it can adequately calculate the lost revenue.
Of course, coverage and the claims process is governed by the individual insurance policy, but there are several limitations which are universal. Business Interruption Insurance is not sold as a stand-alone insurance policy, and is obtained as part of a broader policy. Therefore, it typically can only be triggered by covered causes of loss. Generally, Business Interruption Insurance is only available for as long as it is necessary to get the business running again and most policies will require that the business resume operations as quickly as possible while taking all reasonable steps to prevent future losses.
How Much Coverage Does My Business Need?
Obviously, different businesses require different coverage, but a business owner can roughly calculate necessary coverage by considering how his business would be affected by a prolonged interruption. Some factors to consider include:
- Monthly Revenue
- Operating Expenses and Fixed Costs
- How Long It Would Take To Resume Operations After A Covered Cause of Loss
- Comparable Commercial Spaces For Relocation
- Number of Payroll Employees
Lastly, business interruption coverage may apply when the waiting is not consecutive days. For example, if a storm causes you to shut down your business for a few days, less than 7, and then you are allowed to return, then coverage would not be triggered. However, if you were down for a few days and the storm, fire or other covered event caused property damage prohibiting your business from operating, and the total waiting period is more than 7 business days, then business interruption coverage should be triggered.