When Hurricane Katrina slammed into the Gulf Coast, many businesses were unable to operate for days or weeks. Many companies have been aided in their recovery by business interruption insurance.
Business interruption coverage replaces lost business income and pays ongoing expenses if you are unable to operate due to circumstances described in your policy. But this isn't a panacea for every possible disaster, says Anita Setnor Byer, president of Setnor Byer Insurance & Risk in Plantation, Florida. For example, your policy may cover business interruption due to fire but not wind damage, or water damage from rain but not from flooding. And it probably doesn't cover losses due to inaccessibility if streets are closed by the authorities in the event of, say, a potential riot or an imminent storm, although if you are unable to operate after the streets reopen, your coverage should kick in. Setnor Byer says basic policies typically stop paying damages at recovery or 30 to 60 days after the property is restored.
While extended coverage is available, the greater your coverage, the higher your premiums. And no business interruption policy will cover a downturn in the economy--even one related to a natural disaster. It's best to make business interruption coverage a component of an overall disaster recovery plan that includes financial reserves.
Jacquelyn Lynn is a freelance business writer in Orlando, Florida.