Importance Of Business Interruption Insurance For Nonprofit Organizations: How To Get Business Interruption Coverage
Business owners know that it is crucial to have insurance to protect their company in the event of a disaster. But what about nonprofit organizations like a church?
Nonprofit organizations are just as susceptible to business interruptions as for-profit businesses. Whether due to a natural disaster, power outage, or even theft, a nonprofit organization can lose valuable time and money if they are not adequately protected.
That’s where business interruption insurance comes in. Business interruption insurance can help cover the lost income and expenses that a nonprofit organization incurs during a business interruption.
If you are a nonprofit organization, here is what you need to know about business interruption insurance.
What Does Business Interruption Insurance Cover?
Business interruption insurance is a form of insurance coverage that helps nonprofit organizations recover lost income and pay for extra expenses if routine business operations are disrupted by a covered peril such as a church fire. It replaces income lost due to the closure of a business or the need to rebuild after a disaster.
This type of coverage can be added to the church property insurance policy or comprehensive church insurance package policy, such as a business owner’s policy (BOP).
Church insurance companies will request the nonprofit organization to provide the prior 12 months’ financial statements to review how the natural disaster has impacted the organization financially.
What Are The Benefits of Business Interruption Coverage For Nonprofit Organizations?
1. It covers the financial costs of a sudden business closure due to an insured event
Business interruption insurance is designed to help cover the financial costs of a covered loss for nonprofit organizations. These costs may include lost revenue, rental or lease payments, relocation expenses, employee wages, taxes, loan payments, losses due to inability to access the facility, profits, fixed costs, temporary location costs, commission and training costs, and extra expenses.
2. It may cover the cost of temporary relocation and re-establishment of the business
Business interruption insurance may include a coverage called extra expense coverage. This would reimburse extra expenses paid due to the covered loss, such as employee overtime or rent on a temporary location.
3. It may cover lost profits if the business can not operate for the covered event
Based on prior 12 to 24 months’ financial statements, business interruption insurance provides nonprofit organizations with lost profits coverage. This type of coverage will reimburse profits that would have been earned had the interrupting event not occurred.
4. It may cover the cost of covering increased insurance premiums due to increased risk
Yes. Business interruption insurance can cover the cost of increased insurance premiums due to increased risk. For example, Business interruption insurance can include extra expense coverage, which can cover the costs of relocating to a temporary or new location and any related expenses, including the insurance premiums for the temporary location.
5. It may cover the cost of repaying loans or making rent payments in the event of a prolonged business closure
Business interruption insurance typically covers mortgage, rent, lease, and loan payments for nonprofit organizations. This coverage is applicable if the organization’s property is damaged by a covered peril, resulting in temporarily closing operations.
How Much Does Business Interruption Insurance Cost?
Business interruption insurance costs depend on many factors, including the industry, the number of employees, and the desired coverage. The cost of business interruption insurance typically ranges from $10 to $150 per month for small businesses but can vary depending on the location and risk of a covered peril or loss.
It is essential to factor in the expected growth and inflation, moving and relocation costs, and costs associated with doing business from a temporary location to determine the necessary coverage amount.
How to Get Business Interruption Insurance Coverage for Our Church?
When deciding to obtain business interruption insurance for your place of worship, your church board needs to review your profit and loss statement and balance sheets over a 12 to 24-month period, considering expected growth and inflation, relocation and temporary space costs, and employee costs.
Smaller churches will not need a large temporary space to rent, while large mega church’s rental costs could come at a high monthly cost. As your church insurance agent, we will review your organization when calculating the business income coverage limits.
Many church insurance policies include $100,000 in business income insurance which can be sufficient for a new church plant insurance program or small church insurance program. However, medium or large churches should request to increase these limits to meet their church insurance needs.
Does Church Property Insurance Automatically Include Business Interruption Insurance?
No, church property insurance does not automatically include business interruption coverage. Church property insurance typically covers damages to the physical premises, such as buildings, equipment, and fixtures, and liability for bodily injury or property damage caused by the church’s activities.
Business interruption insurance helps replace the loss of business income when the business property sustains a covered loss resulting in lost business income. It is vital to ensure your commercial property and liability insurance policy includes a business interruption policy as part of your church insurance plan.
How Much Business Interruption Insurance Should Our Religious Organization Get?
When choosing an appropriate amount of coverage for your religious organization’s business interruption insurance, it is vital to consider the potential losses you could suffer from a catastrophic event. It would be best to consider how long it would take to rebuild or relocate your organization and the associated costs.
To determine the right coverage for your religious organization insurance program, estimate the profits you would have had in the 12 to 24 months it would take to rebuild and use that number as the limit for your business interruption insurance policy.
It is critical to include extra expense coverage to cover your relocation costs during the restoration period of your church buildings. Reviewing any exclusions and limitations to this vital coverage within your business owner’s property policy is critical.
Talk with one of our church insurance providers about adding business interruption insurance to your commercial property insurance policy. We will ensure you have the right amount of coverage at an affordable price.
What does business interruption insurance typically cover?
Every business interruption insurance policy typically covers losses of income and operating expenses resulting from a temporary interruption in business operations caused by a covered peril, such as fire, hurricane, or other natural disasters.
What are the four causes of business interruption covered by a standard business interruption policy?
A standard business interruption policy typically covers four causes of interruption: physical damage to the business property, damage to the supplier or customer property that disrupts business operations, civil authority orders that prohibit access to the business property, and utility services interruptions that impact business operations.
Here is how each of these coverages works:
- Physical damage can include fire, water damage, or severe weather that causes structural damage to the building or destroys equipment.
- Damage to a supplier or customer property can occur if a key supplier or customer experiences an interruption that impacts the ability of your business to operate normally.
- Civil authority orders can be issued during a disaster or emergency, such as a quarantine or evacuation, preventing business property access.
- Utility interruptions can occur if there is a power outage, telecommunications outage, or other service disruption that prevents the regular operation of the business.
A business interruption policy can provide businesses with financial protection and peace of mind during an unexpected disruption by covering these four types of interruptions.
How long is the waiting period for business interruption insurance?
The waiting period for business interruption insurance varies depending on the insurance company and the policy chosen. Most policies have a waiting period, which is typically between 24 to 72 hours.
The waiting period serves as a buffer period, allowing the insurance company to determine the damage to the business before it starts paying out claims. During the waiting period, the business owner must continue paying all business expenses and operating costs. The insurance company will not cover these expenses until the waiting period ends.
Is business interruption insurance part of general liability?
Business interruption insurance is not part of your general liability insurance policy. If nonprofit organizations obtain property and casualty insurance as part of a package policy, this business owner’s policy may include endorsement of business interruption and extra expense coverage.
How does the insurance company define interruptions of business operations?
Insurance companies define interruptions of business operations as situations that prevent a business from conducting its normal operations, resulting in losses. Such interruptions could be due to natural disasters, damage to property, theft, equipment breakdowns, and power failures.
How is business interruption insurance calculated?
Business interruption insurance is calculated by considering various factors, such as the nature of the business and its operations, the revenue generated, and the potential financial loss that may be incurred due to an event that interrupts the operations.
Insurers may consider the business’s financial records for the past few years to determine the average revenue and profit margin. They may also assess the potential risks that could impact the business, such as natural disasters, loss of key personnel, or a cyber attack, if your insurance program includes cyber insurance coverage.
Based on these factors, insurers may estimate the coverage required to compensate for lost profits, continuing expenses, and additional costs incurred during the recovery phase.
Request Church Insurance Quotes From Integrity Now Insurance Brokers
Integrity Now Insurance Brokers is a reliable church insurance agency offering quotes to nonprofits and religious organizations. They protect churches and religious organizations with liability, property, and workers’ compensation coverage.
Churches may require insurance for unforeseen events such as vandalism, theft, and fire, which can lead to substantial financial losses. Getting insurance from Integrity Now Insurance Brokers gives church leaders, members, and volunteers peace of mind.
Church insurance helps you focus on your ministry and community outreach without worrying about financial risks. Integrity Now Insurance Brokers is an independent insurance agency that works with multiple church insurers and can provide customized insurance plans that fit the unique needs of every church.
We are committed to providing excellent customer service and competitive pricing. Contact us today to get a free church insurance quote.