A Guide to Business Income Insurance for Startups

The first years of any new business can be turbulent in terms of income. Since you wouldn't want a bad year or a temporary setback to force you to go out of business, it's important to consider business income insurance (also known as business interruption insurance) as a protection. Here is what you need to know about this type of commercial insurance

When Is It Relevant?

Business interruption insurance kicks in when your business experiences a temporary reduction or stop in your normal operations. For a restaurant, this could occur when you encounter problems with proper permitting or inspections. For an office, you may be forced to temporarily scale back your office if your building suffers serious damage. 

What Does It Cover?

Commercial insurance for temporary interruptions can cover a wide range of costs. First, it can help to replace any revenue that you would have made during the period of loss. It can also help to provide for your operating expenses in the interim, such as the overhead of keeping displaced employees on board. With more comprehensive plans, the insurance can also cover the additional expenses that occur as a result of your disaster. For instance, if you need to rent a temporary, second office space so that your employees can keep working, a comprehensive commercial insurance plan can cover these additional costs. 

Who Needs It?

It's important to note that business interruption insurance is most valuable for startups that were already making a profit before the loss occurred. A big part of your insurance payout evaluations will be based on the amount of estimated revenue that you were projected to make during the loss period. An accountant would look at your previous years' revenue to determine how much money you might have made during normal operations. So, if your business has not been steadily turning a profit in the past few years, then business interruption insurance might not do a lot for you during the loss period except help you cover the costs of continued operations during your rebuild. 

In short, business interruption coverage is a great thing to consider as part of your startup's commercial insurance coverage. It can help to make sure that your business stays on track and continues growing, even despite a temporary setback. Speak with an insurance broker to determine how much business interruption coverage you should add to your business insurance lineup.