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When To Obtain Business Interruption Insurance

Aug 17, 2007
Business interruption insurance refers to insurance, which covers the risk of losses a business may suffer because of a temporary closure of the business due to some circumstances like fire or another peril. Business owners who buy this type of insurance get the compensation for lost profits and recurring expenses.

Explore all the options and make a wise decision. Insurance providers offer several options. For example, a certain policy reimburses the extra expenses if you need to perform business operations from a new place because of some disaster at the original place. Choosing this kind of an option is an indication of the buyers' foresightedness and good judgment.

How to Buy Business Interruption Insurance
The unique character of this type of insurance is that it isn't sold as a separate policy. If you want to purchase it, ask the providers to add onto an already existent property insurance policy. A typical example is a business owner's policy onto which this type of insurance can be added. Before finalizing, make sure to ask the agent if there is any new offer by the providers.

Make Sure That You Get Enough Time
One important point to keep in mind when buying it is that you should get enough time to restart your company as usual. A major disaster can damage a company to such an extent that rebuilding business can take more time than you had estimated. The normal waiting period is approximately two days. The waiting period is the time for which the insurance providers do not start making payments.

Factors Affecting Price
Factors that affect the price include the kind of business, the location, and the degree of ease involved with shifting to a temporary location. For example, a real estate agency may get a cheaper deal than a restaurant, because the risk of fire associated with it is less than with a restaurant.

If you have paid for it and a disaster occurs, the provider will reimburse you an actual amount of money that you would have earned had the business activities not been disturbed. This calculation is done on the basis of your financial records. You also get compensation for the expenses like electricity, because it is a continuous expense whether business is running or not.

Don't Think That You Will Never Need It
Finally, you should not avoid buying it just by giving an excuse that these situations are hypothetical. You never know when a disaster shall strike, especially when you have to rely on others to perform various duties. It is better to be safe than sorry.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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