What does business interruption insurance cover?

Entrepreneurs and self-employed people often find their livelihoods hanging by a thread. An incident that causes turnover to fail could lead to the threat of insolvency. The reason for this is that lenders often show no mercy. Those who do not pay their loan instalments on time have a problem. There are more than enough reasons for business failure. Fortunately, small entrepreneurs can protect themselves against this with insurance. But be careful – even that doesn’t cover everything. We show what you should look out for in such business interruption insurance.


Business interruption insurance – what should you look out for?

Depending on the business activity, there are various reasons why turnover could drop from 100% to zero from one day to the next. For example, there could be a pipe book that floods the production facilities, a flood, or a fire that paralyses the business. Sometimes, however, an important employee falls ill or the boss has an accident. In 2010, for example, a volcanic eruption meant that all airlines in the EU were not allowed to take off. Such things also happen.

For such extensive failures, business interruption insurance has established itself in business circles as an effective form of protection. It is supposed to ensure a cash inflow whenever a business gets into an emergency through no fault of its own. But this is where the big tug-of-war begins. For there is always the question of what is indebted and what is not. And even then, if it happens through no fault of one’s own, whether the insurance company then has to pay the compensation for a special circumstance. As a rule, the insurance company then pays for lost profits and / or assumes continued payment of fixed costs.

Basically, when it comes to designing a policy, the parties always enjoy freedom of design. From this point of view, each party can individually agree with the insurance company which claims will be covered.

Depending on the business, it is advisable to take different variants. Depending on which resources are the most important for the production of services. A production company, for example, would do well to insure against the failure of machines and buildings. These can be destroyed by storm, burglary or fire, for example. For an internet agency, on the other hand, such items hardly play a role. They should worry about completely different risks.

The reason why the design of these questions is interesting is that in an emergency it can decide about weal and woe. Right now, in times of the Covid crisis, many businesses are forced by law to suspend their activities. As a result, many restaurateurs have wanted to claim on their insurance companies. They are fighting tooth and nail and do not see such state intervention as a case of damage. Numerous lawsuits are being brought as a result. Clear guidelines do not yet exist. The important question is always: What exactly does the contract say?

That is why entrepreneurs should always be actively involved when negotiating terms and conditions with their provider. General formulations are the key. Something like “liability for any interruption not caused by oneself” is always helpful when it comes to lawsuits later on.