Business Insurance Basics

Most businesses need to purchase at least the following four types of insurance: 

1. Property Insurance Property insurance compensates a business if the property used in the business is lost or damaged as the result of various types of common perils, such as fire or theft. Property insurance covers not just a building or structure but also the contents, including office furnishings, inventory, raw materials, machinery, computers and other items vital to a business’s operations. Depending on the type of policy, property insurance may include coverage for equipment breakdown, removal of debris after a fire or other destructive event, some types of water damage and other losses. 

Business Interruption Insurance 

Also known as business income insurance, business interruption insurance is a type of property insurance. A business whose property has sustained a direct physical loss such as fire damage or a damaged roof due to a tree falling on it in a windstorm and has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential. That is why business interruption insurance is so important. There are typically three types of business interruption insurance. A business can purchase any one or combination of these. 

• Business Income Coverage: Compensates for lost income if a company has to vacate its premises due to disaster-related damage that is covered under the property insurance policy. Business income insurance covers the profits the company would have earned, based on financial records, had the disaster not occurred. The policy also covers operating expenses, such as electricity, that continue even though business activities have come to a temporary halt. 

• Extra Income Coverage: Reimburses the company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period. 

• Contingent Business Interruption Insurance: Protects a businessowner’s earnings following physical loss or damage to the property of the insured’s suppliers or customers, as opposed to its own property. Damage due to floods, earthquakes and acts of terrorism are generally not covered by standard business property insurance but can be purchased through various markets.