Business Interruption Insurance Types
What is Business Interruption Insurance?
This business insurance plays a significant role in restoring your business operations and bringing back activities that are on track with financial stability. In addition, business interruption insurance also covers the loss of income during the damage or disruption when your business is not capable of carrying forward the operations at normal frequency.
Example of Business Interruption Insurance
Example 1
Example 2
In this case, if the restaurant has business interruption insurance, it will cover the lost revenue from those two months. This will allow businesses to pay their employees and cover other expenses while the restaurant remains closed.
How Business Interruption Insurance Works?
Wondering how business interruption insurance works? Business interruption insurance works securely in order to compensate a company for its lost income during the disruption period that is either caused by fire damage, natural disaster, or physical property damage. It works by covering the profits the business would have earned if the disruption did not occur.
This coverage is usually added onto a business property or property insurance policy and only pays out if the damage is caused by a peril covered within the policy. This is how business interruption insurance works.
Types of Business Interruption Insurance
Contingent Business Interruption
This business loss insurance coverage majorly protects against losses that result from third-party vendor disruptions. Let's take the example of a supplier whose warehouse was disrupted by floods. Here, the insurance plan will cover lost income.
Extra Expense Coverage
It is a type of coverage which provides additional coverage for extra expenses. It covers the expenses that took place during a business interruption.
Commercial Property Insurance
This coverage plan safeguards against actual losses that took place due to physical damage to the property of the business. For example, fire damage.
Business Income Insurance
When you cannot run your business operations due to property damage, business income coverage will cover the lost income. By investing in this plan, you can meet your ongoing expenses, like rent and utility bills. It also covers employee wages, payroll, and lost net income during the process of restoration.
Civil Authority Coverage Insurance
Civil authority insurance coverage in business insurance in the UAE will extensively cover business income loss if a civil authority prevents access to your business premises. This coverage is usually part of a business interruption insurance policy. The coverage includes costs to relocate and continue operations temporarily.
Business Interruption Insurance Coverage
| Taking care of fixed costs | It covers additional expenses as well as operational costs. |
| Shifting to a temporary location | Business Interruption Policies cover the expenses needed for a company to temporarily relocate and continue its operations and production. |
| Coverage for civil authority ingress | In the event of a disruption to business operations, the government may impose strict regulations, such as ordering the closure of business premises or implementing mandatory curfews. These government-imposed restrictions can result in significant financial losses for the company, which are specifically covered by business interruption insurance. |
| Commission and training costs | In many cases, when a company experiences damage, it may need to replace machinery and invest in training to ensure operations run smoothly. Business interruption insurance typically covers these costs. |
| Loan payments and taxes | Some businesses need to pay their loans on a monthly basis. Therefore, business interruption insurance covers these costs when a company is unable to generate income due to damage. It also provides coverage for timely tax payments to prevent any penalties. |
Business Interruption Insurance Exclusions
The business interruption event could lead to several broken items, but the insurance does not cover damage to glass items.
Communicable diseases such as pandemics or viruses.
Utility damages.
Some insurance policies may not cover natural disasters such as earthquakes or floods. You may need to add a separate plan for it.
Any form of unreported income is irrelevant to a business’s financial statements.
Benefits of Business Interruption Insurance
Get Protection Against Property Damage
If your business operates from a physical location, business interruption insurance can help protect it from damage caused by natural disasters or accidents. So, you do not have to pay a huge amount to recover the property loss.
Liability Coverage
Liability coverage can help reduce personal liability if a compensation claim is filed against the business. This is especially important in cases like personal injury claims that took place during business operations.
Business Disruption Coverage
Business interruption insurance can provide financial support by compensating for lost income if your operations are disrupted due to unforeseen circumstances beyond your control. This could include events like natural disasters, harsh weather conditions, or the breakdown of essential equipment or machinery.
Employee Protection
The coverage safeguards both businesses and their employees by covering compensation costs if an employee sues their employer. Similarly, public liability insurance helps reduce the personal liability of employees if a customer files a claim against the business.
How to Calculate the Right Amount of Business Interruption Insurance for My Business?
| Formula 1 | Formula 2 |
|---|---|
| Loss of Sales – costs saved by not generating sales | Net Income + Continuing Expenses + Extra/Additional Expenses = Business Loss |
Frequently Asked Questions about Business Interruption Insurance in the UAE
No, business interruption insurance is basically not mandatory for companies operating in the UAE. However, it is highly recommended to maintain financial stability.
Contingent business interruption coverage is designed to protect a business from income losses that take place when a key supplier or customer experiences disruption to their operations because of physical damage to their property.
Business interruption insurance typically covers all sorts of extra expenses, such as operating expenses, employee payroll, taxes, and loan payments. Moreover, it even covers moving to a temporary location.
- Business income coverage: It protects your business from loss of income due to unforeseen events or service interruptions.
- Business interruption insurance: This covers income loss because of disasters, such as fires or natural disasters.
To determine the right coverage amount, you need to consider gross earnings and projections of your business in order to estimate future profits. Better seek an insurer agent for this.
Yes, business interruption insurance in the United Arab Emirates can cover lost income due to natural disasters.
In the UAE, the waiting period for Business Interruption Insurance to take effect is usually between 24 and 48 hours.
If your business experiences an interruption, the foremost important thing is to assess the situation and activate your business continuity plan.
Yes, business interruption insurance can cover losses due to cyber-attacks. This coverage is defined as Cyber Business Interruption (BI) insurance.
