It may yet be too soon to claim that we can look back at the global pandemic caused by the novel coronavirus for insights into how we could have been more prepared. By most accounts, there is more to come, and we will be feeling the effects of COVID-19 for a long time. One of the questions that business owners should be asking right now is whether they are entitled to insurance claims under business interruption insurance policies if they have shut down due to the pandemic.
Business interruption insurance covers ongoing business costs or replaces lost income when a business is forced to shut down due to an accident or disaster. It is generally not a stand-alone insurance policy. Business interruption insurance is typically an add-on to other types of business insurance such as general liability policies or is included with comprehensive business insurance policies.
Check Your Coverage
If you know you have business interruption insurance, you may not be sure of exactly what it covers because there is a lot of variability between policies. Some policies cover your business for expenses from the time you shut down to when you reopen. Others may cover you further until you are able to regain a similar level of business as before the disaster. Still, others only cover situations that are clearly named in the policy (named peril policies) while so-called ‘all-risk’ policies cover more.
With the unprecedented events that have unfolded so far this year, insurance companies and businesses are grappling with how to treat the COVID-19 pandemic as it applies to business interruption insurance. Does it qualify or not? Certainly, many business owners for whom the devastation is complete would agree that it does, however, there are a couple of complicating factors. First, not many named peril policies include ‘global pandemic’ or ‘once-in-a-lifetime-public-health-crisis-that-we-didn’t-see-coming’ as one of the listed disasters, and all-risk policies may also be open to interpretation in this case. The other unfortunate problem is the fact that the effects of the pandemic are so wide-spread that insurance companies would be forced into bankruptcy if they had to pay out to every qualifying business. It’s a similar situation as when insurance companies stopped allowing travel insurance policy claims for COVID-19 because there were just too many of them. Regardless, business owners should take a look at their business insurance policies to better see where they stand.
Looking Ahead
While it is too late to now, if you don’t have business interruption insurance, you can learn from this experience and prepare for the future. As with the cost of other types of business insurance, business interruption insurance is eligible as a tax deduction. Talk to your insurance provider and find out what options you have for adding business interruption coverage. There are a lot of options to cover loss of income, extra expenses incurred, and to cover wages so that you don’t lose employees while you are shut down. Of course, every business is different. An insurance broker can help you to decide what type of coverage you need and find a policy that fits your budget.
E&Y Insurance Agency helps small and medium businesses, self-employed people and contractor workers in Michigan get the right type of insurance at the best rates. Call us at 248-817-8071 or fill out the form below to get in touch to talk about business insurance, home and auto insurance, and health insurance. We also provide expert tax preparation services for individuals and businesses from our office in Michigan.
