Business Interruption Insurance in Texas

Business Interruption Insurance in Texas is the part of commercial or business insurance that absorbs the financial pressure of income loss arising from a disruption of business operations by unexpected but covered events. Such events usually cause some damage that halts business activities. As a result, the business suffers income loss. Business interruption insurance cushions the effect of this loss by paying the insured what should have been their income if activities were going on normally. It also gives the business management enough time to recover from the damages arising from the event. Business interruption coverage aims to provide support while the business bounces back to normal activity. Like every other insurance policy, there is room for extending or customizing coverage to meet the needs of a business, all within the policy’s terms and conditions. In this article, you will learn about what Texas business interruption insurance is, how, when, and where to get one, and why you should get one.

What is Considered Business Interruption Insurance?

Business interruption insurance in Texas is a policy that covers the financial losses arising from a disruption of normal business operations because of damage caused by events such as fire, storm, or other occurrences beyond control of the insured. It may take some time for businesses to get to normal business activities after such damage. Business interruption insurance cushions the impact of damages caused by a covered peril on a business by paying the income lost due to disrupted activities.

What is Business Interruption Insurance for?

Business Interruption Insurance in Texas is for all businesses, especially those likely to shut down because of an extended period of lost profit arising from halted operations. While large corporations may be able to absorb the liability of income loss, medium- and small-scale businesses may not cope well. Business Interruption Insurance offers an effective way for a business to pull through a period of disruption in business activities, where the income stream is not enough to sustain the existence of the business. Keep in mind that your insurance company pays for only covered events, that is, events included in the policy.

What are the Types of Business Interruption Insurance?

Business Interruption insurance in Texas could be part of a:

• Comprehensive business insurance policy, or a

• Standalone policy.

As part of comprehensive business insurance, business interruption only pays for covered losses listed in the primary policy. Stand-alone business interruption policies pay for defined events, which may have been excluded from a comprehensive insurance policy. There are four types of coverage under business interruption insurance in Texas:

• Business Income coverage: This type of coverage is determined by your previous records of sales and expenses. It requires that you have steady documentation of what your income and sales have been like over the past few months. Business income coverage is your net profit/loss before taxes, plus ongoing operating expenses.

• Extra Expense coverage: This represents expenditure over and above your normal monthly expenses, targeted at restoring the business or moving it to a temporary location. This type of coverage could be a standalone or part of your primary insurance policy.

• Civil Authority coverage: This is coverage for loss of income and additional expenditures due to the government banning you from your premise because of a covered loss at a neighboring location. For example, if an office gets burnt by fire in the same building where you operate your business, the government may run a red tape around the building for investigative purposes. During this period, you may not be allowed to access your premises. Civil authority coverage pays for this loss.

• Contingent Business Interruption coverage: This coverage pays for lost income because of a property loss/damage to your supplier or customer’s business. For example, if you run a confectionery store, and your flour supplier suffers damage to their business property, you get paid for income loss.

Do you Need Business Interruption Insurance in Texas?

You may need business interruption insurance in Texas if an abrupt stoppage of normal business activities could lead to significant financial loss. A business can hemorrhage assets and eventually could lose everything, especially if the interruption is prolonged or out of your control. While most business interruption insurance policies are usually bundled up with a standard commercial business policy, you could buy more business interruption insurance coverage if the business’ risk needs justify the extra expense that it will cost. The type of coverage you need also depends on the type of risks that can halt your business activities.

When deciding on the type, coverage, or cost of business interruption insurance, make sure to discuss this with an experienced and state-licensed commercial insurance professional. A knowledgeable agent can assess your business needs and provide multiple options of solutions to meet those needs.

Why Do you Need Business Interruption Insurance?

In Texas, you need business interruption insurance to keep your business afloat if you cannot operate because of an unexpected event. Tornadoes , for example, often occur in Texas. If you cannot operate your business because of damage by a tornado, your business interruption insurance policy will pay you for that period as though you were operating normally. With a business interruption insurance policy, your business will not have to record losses arising from work interruption.

How Much Business Interruption Insurance Do you Need?

How much Business Interruption Insurance you need in Texas largely depends on the nature and size of your business and the length of coverage you require. You cannot overinsure. The claim payout from the insurer is proportional to the amount of sales losts, calculated based on the pre-interruption revenue levels, so the business cannot receive more than it was going to make on its own. The longer you expect the insurer to pay after the interruption, the more expensive the coverage will be.

Most Texas business interruption policies provide at least 1 week of lost revenue coverage to the insured business.

Generally, business interruption coverage is part of a standard business owners' policy “ab initio” (from the beginning). Therefore, it is bundled with other coverages in the policy. Standalone business interruption insurance policies cover liabilities not listed in a primary business policy. You may also wish to extend coverage for listed risks. In short, it all boils down to what you need and how much you can pay. When deciding how much business interruption insurance your business needs - assess:

• How long would it take to restore normal business operations after a disruption?

• What is the cost of renting a new location (if you need to move your business)?

• What is your average earning as a company?

• How much goes into your payroll?

• Do you have ongoing loans?

Discuss your needs with a licensed insurance agent or broker in Texas.

What Business Interruption Insurance Coverage Do you Need?

Every business has a specific set of risks. What an interruption means in one type of business may differ from another. For example, business interruption for an online sales/delivery business may be the disruption of the internet service or server. This could also mean the inability to deliver goods to customers because of bad weather. Another type of risk is the sudden relocation of your business because of a change in policy by the government. Business interruption insurance pays to replace your income you could have made during the relocation period.

For a business interruption insurance policy to be effective, you need to know what risks apply to your business and if such risks are covered by your policy. Speak with a licensed Texas commercial insurance agent to help you decide what kind of coverage will be useful for your particular business. Discuss your common coverage options: Business Income, Extra Expense, Civil Authority, and Contingent Business Interruption.

Is Business Interruption Insurance Required by Law in Texas?

No, a business interruption insurance policy is not required by Texas law, however it is usually included as a coverage in a typical commercial insurance policy. Standalone business interruption insurance policies are also not mandatory.

How Does Business Interruption Insurance Work in Texas?

A business interruption insurance policy in Texas covers business expenses in two main areas:

• Maintaining income during the period of interruption

• Sustaining overhead expenses.

While speaking with an experienced commercial insurance agent, you assess the needs of your business and ultimately purchase the appropriate coverage. The business pays the annual premiums (in full or through premium finance) until a covered event takes place and the business is unable to operate in its regular way. Business is interrupted.

The business puts together a claim and submits it to the insurer either through the agent who sold the coverage or directly with the insurer, though there is usually a delay.

Unlike regular property claims, where deductible is usually set as a specific dollar amount, there is no deductible in business interruption insurance, but there is a Waiting Period. The “waiting period” can be viewed as a deductible, because it defines the length of time, during which the business is supposed to use its own cash flow to support itself. If the business purchases business interruption with a 48-hour waiting period, the first 2 days after the interruption are on the shoulders and the bank account of the business. A 72-hour waiting period means waiting for 3 days, and so on.

Make sure to discuss the waiting period with a state-licensed insurance agent, who has access to multiple insurers for comparison.

What Does Business Interruption Insurance Cover?

Business interruption insurance policies cover the following in Texas:

• Lost income: This refers to profits from sales or services that your business could not make because of disrupted activities.

• Cost of renting a temporary space for business: This refers to the cost of procuring a temporary place to continue your business, especially if the business interruption was caused by damage to your current premise.

• Ongoing loan payments: This relates to any active loans or credits directly connected to the business. For example, if you purchased or leased your business equipment on credit, business interruption insurance pays for your loan during the period of your interruption.

• Payrolls: During a disruption, your business interruption insurance pays the staff on your salary roll.

• Taxes: Businesses must pay taxes, no matter the circumstance. Business Interruption insurance helps pay your taxes to avoid penalties.

• Rent or lease payments: Rent or lease payments come under fixed costs. Fixed costs refer to the cost of doing business.

• Employee training expenses: During a business interruption, it may be necessary to purchase new equipment and train personnel to handle them. Business Interruption Insurance pays for this.

What is Business Interruption Insurance Good for?

Business interruption insurance in Texas is good for protecting businesses that cannot afford the prolonged loss of income because of a business interruption event. It pays for whatever expenses the business incurs because it could not operate due to a covered direct physical loss or damage, such as might be caused by fire or a natural disaster. Whether you have it as part of your primary commercial insurance policy or a standalone insurance policy, your business gets financial protection when unexpected events occur. Such events must, however, be defined in the policy. Therefore, it is important to consult a licensed insurance agent or broker in Texas for guidance. They should guide you on which and how much coverage you need for your business.

What Does a Typical Business Interruption Insurance Include?

A business interruption insurance policy typically includes:

• Payment for lost income due to damaged goods or projected income during the interruption. Your insurance company calculates your income based on your previous earning records and the dollar limit of your coverage.

• Additional expenses that surface due to a relocation of your business premises. For example, if your business premises are vandalized, your insurance company will pay you for the cost of moving to another location to do your business while you carry out repairs. Note that your property liability insurance is what pays for repairs and not your business interruption insurance.

In addition, the dollar value of your coverage depends on what your policy says. By principle, a policy with a higher dollar limit usually requires higher premiums than one with a lower dollar limit. It all depends on what you want and how much you will pay for the coverage. Speak with a Texas-licensed insurance agent or broker if you need clarification.

Does Business Interruption Insurance Cover - FAQ

Does Business Interruption Insurance Cover Rent?

Most Texas business interruption insurance covers rent of the business property that cannot be left unpaid after the interruption event, per the lease agreement. If the lease contract requires the continuation of the rental payments after an interruption event, the insurer considers the expense valid and pays it as part of the Extra Expense coverage. If the lease allows the business to stop paying rent, business interruption insurance will not cover it.

Alternatively, what if the business in question is a commercial property company, a Landlord which leases its space to other businesses? If their leased property suffers damage from an event that forces the tenant business to shut down and not be able to operate and pay rent, the landlord can recoup the lost income using a different tool: through the Rent Loss insurance rider addition to their Landlord Insurance policy.

Discuss your insurance needs with licensed and knowledgeable Texas insurance professionals.

Does Business Interruption Insurance Cover COVID-19?

Most business interruption insurance in Texas does not cover pandemics or the results of viruses. A valid claim usually requires physical damage to the premises. Check the coverages and exclusions of your policy and speak to a professional insurance agent if you have questions.

Does Business Interruption Insurance Cover Payroll?

Yes, business interruption insurance covers payroll for the employees of a business, after the business’ operations are disrupted and the employees may not be able to work. Payroll coverage is based on the levels of pay that were recorded prior to the interruption.

Does Business Interruption Insurance Cover Cyber Attacks?

Business interruption insurance may cover cyber attacks if cyber coverage was added to the policy, or purchased as a stand-alone feature. If the business operations can suffer from cyber breaches, review the exclusions portion of the proposed cyber contract. Make sure that it does exclude any specific threats to which there can be an exposure.

Does Business Interruption Insurance Cover Power Outages?

In most cases, business interruption insurance does not cover power outages, unless the power outage was a result of the larger event that triggered business interruption coverage. For example, if a tornado damages a building and among other damages also disrupts power to the building where the business is located - business interruption will likely pay.

Power outages that are caused by the insured business are not covered.

If a business needs power outage coverage in case the power company causes an outage, consider getting a specific “utility service coverage” rider added to the standard business interruption contract.

Businesses in the food industry usually purchase Spoilage insurance coverage, which covers the food that may go bad during a power outage.

Who is Covered By Business Interruption Insurance?

Business interruption insurance covers the policyholder, its employees, and any other entity listed in the policy.

An insured policyholder of Business Interruption insurance may be a:

• sole proprietorship,

• partnership enterprise,

• corporation,

• employer, etc.

What is NOT Covered by Business Interruption Insurance in Texas?

Business interruption insurance in Texas excludes all business income losses not arising from covered events. Some events are covered if they are localized; however, they do not qualify for coverage on a global scale. An example is the coronavirus pandemic and subsequent lockdown, leading to the disruption of business activities. Business interruption insurance may not help in this situation. Read the insurance agreement and the exclusions section in your policy for more information. With more questions, consult a Texas-licensed agent or broker.

What Does Business Interruption Insurance Typically Exclude?

A business interruption insurance in Texas does not cover interruptions arising from:

• Breakdown of utility services: Power outage because you did not pay your bills when due, or brief interruptions like a community power outage because of an upgrade. If there is utility equipment damage, your business owner's policy pays for it.

• Income that is not on your business financial records. Insurance can cover only proven and official income sources.

• Damage as a result of flood, hail, hurricanes, or earthquakes: There are separate policies for them. While flood insurance covers floods, hurricanes, and hail, earthquake insurance is specific for earthquakes.

• Broken objects or equipment as a result of a covered event: For example, business interruption insurance does not cover broken glass windows or doors; rather, commercial property insurance covers property damage.

• Pandemic or airborne infections: Pandemics often lead to a shutdown of many businesses due to a lockdown imposed by the state or federal government. Airborne infections of public health concern are beyond any form of control, so business interruption insurance does not cover that. Besides, the impact of pandemics leans more toward health insurance.

• Damage arising from terrorism: If you suffer a business interruption because of terrorism-related incidents, you may not get coverage unless your policy language says so. Usually, your general liability insurance pays for liabilities arising from terrorist acts.

• Weather-related relocations: Suppose the government issues an order to evacuate from an area your business is located due to bad weather. In that case, you may not get business interruption coverage for that period.

What is an Example of Business Interruption Insurance in Texas?

Business interruption insurance in Texas finds wide applicability to several professions and businesses. Below are classical scenarios of how business interruption insurance can cover lost income:

1. A tornado damages a commercial building, partially collapsing a portion where a medical practice leases the space inside. The medical office cannot function without power and a missing wall, so it moves to a temporary location, until the repairs of the building are completed by the landlord. The move takes a month, during which the business doesn't make any money.

The business interruption insurance, purchased by the medical practice covers what should have been the revenue from the practice in the skipped month of work. The office uses the claim funds to pay salaries, rent for the temporary office, and rent to the original landlord (if the lease did not allow for emergency exceptions).

2. An unexpected fire outbreak guts a manufacturing plant, leaving most employees without a daily job. With business interruption insurance coverage, the company's management is able to pay their employees during the period of repairs and restoration.

The applicability of this policy does not leave even insurance agents or companies out. The point is, if any covered event causes your business to halt, business interruption insurance ensures that you have the cash flow needed to keep your business afloat while you deal with the recovery.

What is the Difference Between Business Interruption and Commercial Property Insurance?

Business interruption and commercial property insurance are similar, particularly in lease payments or loans. The difference is that business interruption pays for what should be your income during the period of no work, while commercial property coverage pays for the actual physical damage to the business. Another point to note is that most times, business interruption insurance policies are already part of the primary policy, whereas commercial property insurance can be purchased as a standard package.

Do I Need Business Interruption Insurance in Texas - FAQ

You do, if you think that an interruption of your business activities will negatively affect your business. If you are a small or medium scale business owner, you are likely to need business interruption insurance.

Do I Need Business Income Coverage?

Yes, you do. Business income coverage pays you the profit from your business, overhead expenses, including your payroll, when you are not making a profit because of disrupted business operations.

Do I Need Extra Expense Coverage?

Yes, you need extra expense coverage to pay for the cost of restoring normal business operations or moving to a temporary location. This coverage is available as a stand-alone policy in Texas.

Do I Need Contingent Business Interruption Coverage?

Yes, if the disruption of business activities results from property loss or damage at a supplier or customer's premise. You do not need it if your business does not require the services of another business.

Do I Need Civil Authority Coverage?

It depends. If you can still run your business despite damage to adjacent premises, then it is unnecessary. However, if your business shuts down because of a government directive, civil authority coverage would have been useful. A licensed agent/broker in Texas can help you with making this determination.

Do I Need Business Interruption Insurance if I am Self-Employed?

Yes, you do. If you have a commercial premise for your business, get business interruption insurance as part of your commercial insurance policy. If you work from home, you can get it either through your homeowners' policy or business owners’ policy.

Do I Need Business Interruption Insurance if I Work from Home?

You do. Risks are everywhere, including your home. Limited coverage of business interruption insurance can be bundled as part of homeowners’ policy.

Do I Need Business Interruption Insurance if I Have an LLC?

Yes. You need business interruption insurance if you have a Limited Liability Company. If your company’s finances become at risk in case of a business interruption (regardless of the type or size of the company), you need business interruption insurance.

Do I Need Business Interruption Insurance if I Have Commercial Insurance?

Business interruption coverages are usually included in the general liability (GL) and the business owners policy (BOP). If the business is vulnerable to additional risks, beyond the standard included coverage, you may need to purchase additional "stand-alone" business interruption policy. Make sure to discuss your needs with a qualified commercial insurance agent.

Do I Need Business Interruption Insurance if I Don’t Employ Anyone?

Yes. Anyone can experience business interruption losses, whether they have employees or not. The extent of coverage may differ significantly because you do not have to worry about payroll or other expenses for staff. However, it will pay for your lost income as a result of your inability to work.

It is best to speak with a Texas licensed insurance agent on matters of business interruption insurance coverage. This would help decide whether to purchase a policy or how much coverage to purchase. Ask questions about currently offered products and always compare.

When Does Business Interruption Coverage Begin?

Your business interruption coverage begins in Texas from when you purchase your policy and make the premium payment.

What Triggers Business Interruption Insurance?

Business interruption insurance in Texas is triggered by three key events in a stepwise manner:

1. A covered incident responsible for the present damage or property loss

2. Stoppage of operations because of the damage or loss for a period known as the restoration

3. Loss of business income arising from the stoppage of operations

A standard ensuring agreement of a policy requires that these three events must be clearly obvious before the policyholder can file a claim. A policyholder must file a claim to their insurance provider. Before you begin the claim filing process, contact your insurance provider about the incident and request for what steps you must follow.

Within 48 to 72 hours of filing a claim (depending on the “Waiting period” outlined in the policy), the insurance provider commences payment for covered losses based on the agreement in the policy. Payments could extend up to one year from the incident or more unless your dollar limit is reached. Read your policy carefully to understand how your insurance provider intends to provide coverage during this period.

Who Can Get Business Interruption Insurance in Texas?

Any business entity in Texas (small, medium, or large scale businesses) can get business interruption insurance. You can get a business through a commercial property policy or business owners’ policy. You may also opt to buy a standalone business interruption insurance policy. Contact a Texas-licensed agent/ broker for more information.

Who Qualifies for Business Interruption Insurance?

All businesses in Texas qualify for business interruption insurance:

• Restaurants and Bars

• Factories or Manufacturing plants

• Delivery services companies

• Professional service firms

• Farming businesses

• Ticket and travel businesses

• Raw material supply and distribution companies

• Communication firms

• Health institutions

• Garment industries

• Service-oriented businesses such as car washes, auto garages, dry cleaning, etc.

Who Needs Business Interruption Insurance?

Most Texas businesses need business interruption insurance, regardless of certification or professional qualifications. Doctors, attorneys, artisans, and skilled laborers all could benefit from a certain type of business interruption insurance coverage. If there is a risk of the business not functioning properly due to some event outside of your control, business interruption coverage should be considered.

Discuss your business needs and risks with an experienced state-licensed Texas commercial insurance agent or broker who represents multiple insurers and can provide you with competitive options.

Who Should Get Business Interruption Insurance?

Generally, you should get business interruption insurance if your business has any of the following features:

• Employees on payroll,

• Business premisses, where the business operates,

• Equipment and furniture for the use by employees or customers

In case of an interruption in business, employees need to continue to be paid, while the business is not getting the full stream of revenue. Without pay, the employees may leave, which leads to having to hire and train new employees later. Business income interruption coverage helps with employment retention.

Extra expense portion of the business interruption insurance helps covering rent of a new business location, and getting equipment replaced after the original business location becomes unusable.

Discuss your business needs with a Texas-licensed and knowledgeable commercial insurance professional.

What are the Benefits of Business Interruption Insurance?

The benefit of business interruption insurance in Texas is that it saves you from undue financial strain when a covered incident occurs. In other words, it keeps your business afloat when business activities are halted.

What are PROs and CONs of Business Interruption Insurance in Texas?

PROs of Business Interruption Insurance:

Business interruption insurance is a safety net to keep businesses running in difficult times arising from a covered event. Some business interruption insurance PROs are:

• Business interruption insurance in Texas keeps your business afloat even when you can't make money as a result of disruption in business operations. In a covered event, business interruption insurance gives you the time you need to re-strategize and recoup for a better business structure.

• You are likely to keep your employees in a long-term disruption of activities because of financial security.

• The claims process is relatively quick and easy to navigate. Most insurance providers in Texas start paying covered losses within 48-72 hours of filing a claim.

CONs of Business Interruption Insurance:

A few downsides to business interruption in Texas are:

• You may pay for a policy you will never use because none of the covered incidents occurred.

• When faced with difficult economic situations, business interruption insurance coverage may not cater effectively for the income arising from the stoppage of work. For example, the impact of inflation can render the dollar limits of your coverage ineffective in paying for your expenses.

• The claims process may not be quick enough for some, since the insured is not able to access claim funds during the 48-72 hour waiting period. This period is treated like a deductible, where the insured business must use its own cash reserves to sustain the operations. After the agreed upon waiting period ends, the insurer steps in, to cover up to the limits of the policy.

You can find out more about this from a Texas-licensed insurance agent/broker.

Is Business Interruption Insurance Worth Buying?

Yes, business interruption insurance in Texas is worth buying, especially when you think about the uncertainties that could creep up on your business. Weather disasters, changing government policies, etc., are all unplanned events that can disrupt your day-to-day business operations significantly. Having insurance coverage that pays you during a period of disruption in business activities is an effective way to stay afloat when such unplanned events occur.

What Happens if you Don’t Have Business Interruption Insurance?

Not having business interruption insurance for your business at any point in time puts you at risk of paying for expenses you could have drawn from your business income. This immensely pressures your business savings, and you risk going out of business if you run out of finances to pay for all running expenses and costs.

What Happens When your Business Interruption Insurance Lapses?

Business interruption insurance policies in Texas often lapse with the primary policy at the end of the policy year unless you have active coverage ongoing. In that case, your business interruption insurance lapses at the end of your restoration period. This means that renewing your primary policy is important to maintaining your business interruption insurance coverage. Like every other insurance policy, you must renew coverage by applying for renewal before it expires. Failure to do so leaves your business vulnerable after the policy lapses. Any liabilities incurred during this period will not be covered by your insurance provider, even if you request for coverage after the occurrence. Make it a point of duty to notify your insurance provider of your intention to renew your policy before the current policy expires. You can do this by contacting your insurance company agent or broker when you are six months into your current policy.