5 Basics of business interruption insurance

The biggest misconception about business interruption insurance is that it will cover lost profits from any unplanned business closure; however, that’s not the case. The business closure must have happened as the result of a covered peril in order for business interruption coverage to kick in.

Here are three other common misconceptions about business interruption insurance:

1. Insureds sometimes think business interruption coverage pays for every cent of lost profits. In fact, it replaces net income that would have been earned during the covered loss plus the cost of normal operating expenses.
2. Insureds sometimes believe business interruption coverage will continue until the business has fully recovered from the loss event. In fact, coverage only extends to a "period of restoration," or a reasonable amount of time to repair or rebuild damaged property.
3. Businesses sometimes believe that business interruption insurance will cover losses after a supplier or utility goes out of commission. But a policy would need to include a "service interruption" endorsement to trigger this type of coverage.

Any policyholder confusion about what is or isn’t covered by their insurance provides an opportunity for insurance professionals to engage in an educational conversation about commercial insurance triggers, exclusions and endorsements.