Business interruption insurance is one of the most valuable coverages available, but it is often overlooked by small business owners. Most businesses purchase property insurance to cover repairs for fires and other disasters. But what happens when a disaster occurs and there is no business income during the restoration and repair phase while money cannot be generated? The loss of income haunts many business owners while working to recover from a natural disaster. According to the Institute for Business and Home Safety, one in four businesses that close due to unforeseeable events remains closed, and small businesses are the most affected because they tend to operate under tighter margins.

To get business interruption insurance, consider the following:

• Document your current net income; if your company is growing, your documentation should demonstrate that your income is increasing.
• Beware of per-incident limits because your coverage may be far below the amount you need to stay afloat.
• Note the types of interruptions you want covered: flood coverage and loss of utilities typically require additional riders. If flood coverage is not included in your general policy, then business interruption in the event of flooding will not be covered.
• To calculate your ideal coverage amount, start by adding all the costs that would continue to accrue whether or not your business is operating, such as loan payments, taxes, and payroll if you want to keep your labor force.

Your business may be at risk when those businesses you depend on are affected by a disaster. An explosion at a key supplier may mean that you no longer have cost-effective access to raw materials, which can hurt your ability to deliver your product. This can impact your income even though your facilities may not be physically damaged. Additional coverage called “contingent business” insurance covers lost profits in these indirect disaster scenarios.

For reimbursement, the best information you can provide the insurer is extensive and detailed documentation of lost profits. Remember to save the back-up of your electronic records off-site so that you can provide proof of your losses if your facilities are destroyed.

Answering these questions can help you plan for the unexpected:

• If my current facility is destroyed, where can we re-locate while the current location is being restored?
• Can sales be maintained, or will we lose sales for a time?
• Is storing or having access to additional inventory an option?
• Is it possible to pay ongoing bills and keep up with payroll for any period of time without generating income?

Your insurance agent can inform you what types of coverages are available and how they work together. Take the time to review your current policy and seriously consider adding business interruption insurance or revisiting your current coverage limits.