Business interruption insurance

With the help of business interruption insurance, a company that has been shut down because of fire or some other insured peril can still be saved financially, despite today's uncertain economy.

Referred to by some as a "saver in a crisis" business interruption insurance protects a business against failure by guaranteeing an "operating income" to cover expenses such as light, heat, advertising and telephone. It also can provide continued profits.

The Insurance Information Institute points out that many businesses never reopen after a major fire loss. A recent survev showed that the amount of business interruption insurance written is negligible when compared to the need for the coverage.

Story at a Glance

How insurance can help a firm continue in business despite a major fire or other disaster even uncompleted buildings can be covered against a number of contingencies.

Forty per cent of businesses sustaining extensive fire losses were forced to close despite having adequate insurance coverage on both the building and the contents, according to the survey. Less than 20% of businesses surveved were able to resume full-scale operations with unimpaired credit rating. These results would have been significantly better if more of the businesses involved had had business interruption insurance.

It is paradoxical that most companies do not have the insurance to protect the very purpose for which they are in business - to have a continuous income.

Business interruption insurance, which is written as a special attachment to the standard fire policy, is available in three policies. There is one for mercan- tile or non-manufacturing risks and one for manufacturing or mining risks, both of which contain coinsurance clauses. There is also one for mercantile and mining risks without a coinsurance clause.

Coinsurance is a provision in an insurance policy which requires the insured to carry insurance equal to a certain specified percentage of the value ofthe property. It provides for the full payment, up to the amount of the policy, of all losses if the insurance carried is at least equal to the specified amount. Otherwise, payment would be only a percentage of the actual loss.

Various endorsements to the business interruption policies are available to make the coverage more flexible.

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