With the stay at home orders out, and all the customers staying in how are the businesses going to weather the storm? Many business owners concerned about paying their rent, and employees have gone to the SBA and their associated banks, asking for loans. Only to be turned away in search of something called Business Interruption Insurance. But business interruption coverage may not be what you need to keep you in business through the social distancing period.
Business interruption insurance is not actually a free standing policy available at any insurance firm. It is actually simply an add on to either a comprehensive business insurance policy, or added to a property/ casualty policy. In the event of an interruption of business income, the coverage would then step in and pay the business. The amount paid is based on the historical income values. This only lasts for the period of interruption. Which definition varies by insurance provider. Most often the period of interruption begins from the point in time when the income ceased due to an event. And extends until the business has been brought back into the same condition it was when the event occurred.
This particular form of coverage is not the coverage that you need to cover your business expenses during the shutdown. It may sound like just the thing, but the reason this will not help you comes down to triggers. A trigger in the insurance world is an event or series of events that cause a policy to kick into action. Business interruption policy add-ons do not contain triggers. They rely on the triggers written in the parent policy. To demonstrate we will use the case of a manufacturing plant. If a manufacturing plant were to have comprehensive insurance, including fire coverage. Then if it were to lose it’s plant to a fire. Then the comprehensive coverage would cover the damage to the property. In addition the business interruption coverage, relying on the main policy’s trigger, would cover the businesses loss of income until it was restored.
In the current situation however, Most business interruption coverage would not pay out in the event of a loss of income. This is due to the trigger. Virus as a loss of business is not a trigger in a standard comprehensive coverage plan. If the base plan remains untriggered, the add on will not kick in. This little technicality could wind up costing business owners a lot of money.
It may feel as though without this business interruption insurance there is nothing that can be done to save these businesses, but all is not yet lost. We recommend before seeking out funding, set yourself up with a comprehensive business insurance plan. This will not cover everything that a business may face during the shutdown, but it will help a good deal. Work with an insurance agent to set up the proper coverage for an individual business.
We recommend this course of action to make it easier to receive the needed loans from the SBA and banks. Any business showing that it has invested in a comprehensive coverage plan makes itself a much more attractive option for loans. Every bank or association providing loans are going to want to make sure that they get their money back. Taking precautionary steps show potential investors that you are a safe bet makes your business the most attractive option.
If you still have any questions or concerns about business interruption insurance feel free to reach out to our team at (210) 301-1640.