Originally posted on CMJ Insurance brokers.
Business interruption insurance is based on an accurate assessment of the amount of time it would take for your business to recover from an event that impacts your normal operations – this is called an ‘indemnity period’. Making sure you have calculated this correctly is key to protecting your business income and cash flow until the business is running as it was before any event occurred.
Business interruption insurance can be added to the overall business insurance policy, providing cover for loss of income and helping a business get back on its feet financially.
Whilst property insurance would look after the resulting damage of say a major water leak, the impact of such an event might leave the business unable to complete its schedule of orders. Business interruption covers the loss in revenue.
The recovery process often takes longer than you think – even small, straightforward businesses often need longer than 12 months protection. For example, planning permission can often take months before any rebuilding works can even start. If you need specialist equipment think about how quickly it can be sourced.
Also, remember that if you haven’t traded for even one year, your customers will have gone elsewhere!
So you will need time to rebuild your customer base and for your turnover to return to pre-loss levels. This should be factored in when calculating the length of time you want your business interruption to cover.
Having the right level of business interruption cover is really important. One in five SMEs surveyed by leading insurer Aviva said they had experienced disruption to their business – it took up to three months for a quarter of them to get back to normal business trading, and for the remainder anything up to and beyond two years.