Although a typical commercial property insurance policy protects the value of your property, what if damages to your business property impact your ability to operate? This is certainly a risk for many sports and fitness businesses that rely on fitness equipment and an open business location. Adding Business Interruption Insurance to your policy is vital in protecting your business from loss of income due to property damage interruptions.

What is Business Interruption Insurance?

Business Interruption Insurance (also known as business income insurance) provides coverage for loss of income and operating expenses if your business must temporarily close to recover from physical loss, damage, or destruction by a covered peril. This coverage includes the business’s net profits and normal operating expenses such as rent, employee salaries, and taxes.

Business Interruption Insurance is unavailable as a standalone policy. Instead, it added to your commercial property insurance policy or bundled with a business owner’s policy. 

Example: 

• A fire breaks out in your martial arts studio causing structural damage to the building. As a small business, you do not have the option of operating from another studio space, so you are forced to close down your business until the damage is repaired. Your insurer would reimburse you for lost income, rent, and other operating expenses until the damaged property has been repaired.

Why do you need Business Interruption Insurance?

As a sports and fitness business, you likely rely on functioning fitness equipment and an open business location. Damage to your equipment, building, or other business property will have a direct impact on your ability to operate and collect revenue. With these factors in mind, it is particularly important for sports and fitness businesses to consider Business Interruption Insurance.

Example: 

• Overnight, vandals break into your spin class studio and damage your expensive cycling bikes. You are unable to continue operations until the costly equipment is repaired or replaced, so you temporarily close your business. While you wait for your commercial property insurance to cover equipment repairs and replacements, your Business Interruption Insurance policy will cover lost profits and operating expenses, such as rent and payroll. 

What does Business Interruption Insurance cover?

Business Interruption Insurance covers lost income if your business is unable to operate due to property damage, lost profits that would have been earned if the property damage had not occurred, and operating expenses (such as utilities, rent, and employee salaries). The direct physical loss, damage, or destruction to property must be the result of a covered peril in order to qualify. These covered perils are the same ones listed in your commercial property insurance policy, which typically include fire, lightning, explosion, theft, vandalism, windstorm, and more. 

Example:

• You discover mold in the shower area of your gym, which can create serious health issues for your gym patrons. You hire mold removal specialists and you are informed that the removal process can take anywhere from one to five days. Because mold is not a peril covered by commercial property insurance, your Business Interruption Insurance cannot provide coverage for loss of income and operating expenses during the temporary shut down of your business.

Period of Restoration

Your Business Interruption Insurance is only liable for the loss of business income during the period of restoration, which is the amount of time that is reasonably required to rebuild, repair, or replace the damaged or destroyed property. The period of restoration can also be the amount of time required to move into a different property and permanently reopen if that time period is shorter. 

The period of restoration is typically 12 months, but this can be extended up to an additional 24 months by paying an added premium when the policy is purchased. If your policy expires or ends before the period of restoration is over, your insurer will continue to compensate your business for lost income until the period of restoration is complete. 

Example: 

• An intense hailstorm damages the roof of your yoga studio. Repairs will take two months to complete, but your policy expires in a month. The damage to your property occurred while the policy was active so regardless of your policy’s expiration date, your insurer will continue to provide funds for lost income until the period of restoration is over.

Waiting Period 

Business Income Insurance is usually subject to a waiting period, which is most commonly 72 hours. None of the losses to business income during the waiting period are covered. The waiting period begins at the time of the loss.

Extra Expense Coverage

Business Interruption Insurance policies can come with or without extra expense coverage. Extra expense coverage pays for expenses that are beyond a business’s normal operating costs. It reimburses your business for money spent to avoid or minimize a business shutdown. This additional coverage only provides funds for expenses that would not have been incurred if the property had not been damaged. It is particularly invaluable for businesses that must continue directly after a disaster. 

Some businesses have the means to move into a temporary location to avoid business shutdown. Extra expense coverage can assist with moving costs, rent for the temporary location, and rental equipment. 

Example: 

• The floor to your dance studio is compromised when your sprinkler system malfunctions. Because your instructors can easily move to a different location to teach their classes, you rent a temporary studio while your floor is restored. The extra expense portion of your Business Interruption policy can cover rent for the temporary location. 

What is not covered by Business Interruption Insurance? 

Business Interruption Insurance is not meant to cover normal business risks such as economic risks or poor business decisions. It is meant to protect your business against accidents and disasters that are out of your control.

Some things that Business Interruption Insurance does not cover include:

• Reduced profits due to competitors or changes in consumer preferences
• Poor company management
• Slowdowns in the economy
• Weather events that may close a business temporarily but not damage property, such as heavy rain or snow

How much does Business Interruption Insurance cost?

Business Interruption Insurance is not sold on a standalone basis but can be added to your commercial property insurance policy or bundled with a business owner’s policy. In order to determine pricing for your property policy, insurers will take a look at the risk of loss for your business. Part of this calculation will involve assigning a commercial property insurance rating, which is specific to the building or property you’re looking to insure. The higher risk your business is rated, the higher the premiums will be.

Some of the factors that can affect your premium pricing include:

• Claims history. A history of prior losses can increase your premiums.
• Neighbors. Neighbors engaged in risky activities, such as a dry cleaner using flammable solvents or chemicals may increase your premiums.
• Fire risk. Having a fire station nearby may lower your premium. Fireproof (brick or stone) construction or fire-resistant interior floors, walls, and doors cost less to insure. Fire alarms or sprinkler systems may also reduce your rates.
• Business type. Depending on what type of business you run, your risks for property damage may be higher or lower. For example, in the same location, a health club that has a kitchen would have higher risk and higher premiums than a martial arts studio due to increased risks of fire.
• Neighborhood. The surrounding neighborhood characteristics can also affect your rate. If the immediate area has high levels of criminal activity or is exposed to frequent accidents or natural disasters, your rates may be higher. Also, if you have neighboring businesses with high fire risks such as an oil refinery, you may also face higher rates.

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer property policies:

Provider	Business Income	Commercial Property	Business Owner's Policy
CoverageSmith	??	??	??
CoverWallet	??	??	??
Thimble	??	??	??

What additional Business Interruption Insurance coverage is available?

A number of coverages can be added to your Business Interruption Insurance policy to ensure that you are fully protected from risks that may interrupt your ability to conduct business. Purchased with additional premiums, the following coverages are examples of beneficial additions for your sports and fitness business: 

Extended Business Income Coverage

Extended business income coverage protects against a loss of income that continues during a set time frame after the business has resumed operations and the period of restoration has ended. Typical Business Income Insurance policies only cover lost profits during the period of restoration, but many businesses do not immediately return to the sales levels they had before the loss occurred. After determining your business profits before the period of restoration, extended business income coverage can compensate you for lost profits until you’re able to return to your previous income level. 

Example:

• After being shut down for three months to repair damages from an electrical fire, your Pilates studio reopens, but customers are slow to return. Your business profits are much lower than they were prior to the period of restoration. The extended business income portion of your Business Interruption Insurance would compensate you for the lost profits. 

Service Interruption

Service interruption coverage protects businesses from property damage and loss due to a utility failure caused by a covered peril. Damage to electrical, gas, water, sewer, and other types of utilities can cause business interruptions, and your service interruption coverage can provide funds to cover these income losses. 

Example:

• A windstorm causes damage to the power line that provides your gym with electricity. Unable to power your building and fitness equipment, your gym suffers income losses while the power line is repaired. Service Interruption can provide funds to cover these income losses. 

Leader Location 

Leader location coverage provides coverage for direct physical loss, damage, or destruction to a neighboring business that draws customers to your business.

Example:

• Your fitness center is located directly from a popular amusement park. The amusement park property is damaged after a severe hailstorm. During their repairs, your business loses significant foot traffic. Leader location coverage would assist you in compensating for lost profits. 

Final Word

Sports and fitness businesses are often very reliant on a physical location or physical property. When this property is damaged, you may be unable to continue your business operations. Business Interruption Insurance is crucial to providing your business with financial protection as you wait for your property to be repaired. Although accidents are inevitable, purchasing adequate coverage helps to ensure that your business is as prepared as possible to face them.