Business Income Coverage
If you are thinking about adding business income coverage or would like to learn more about why you have it, let me start by defining what Business Income Coverage. According to The Insurance Risk Management Institute, business income coverage is commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations. Coverage applies to loss suffered during the time required to repair or replace the damaged property. It may also be extended to apply to loss suffered after completion of repairs for a specified number of days. Business income coverage is also referred to as business interruption coverage.
Now that we have defined business income coverage, lets look at how it works. This coverage is designed to cover what your business lost. Not the businesses total revenue. What is typically covered under this policy is profits, fixed costs, temporary locations, extra expenses, civil authority and few other areas like training cost. Most policies will have a standard 72 hr waiting period before coverage begins. You may be able to modify this if you talk to your agent. They can a;ways check with carriers for additional options to expedite this process. The period of restoration ends when property should be repaired or replaced within a reasonable time-frame. This is in comparison to a similar quality and type of business as yours to either repair the facility or move to a new location.
Business income amounts are determined by comparing historical net income with actual net income during the period of business interruption. The loss is the difference between the net income that would have been earned under normal business conditions and the net profit or loss that has occurred during the period of restoration. Lets say after repairs have been completed that the business is still not generating the business it would have prior to the loss. You can add extended business income coverage to you policy for up to 60 days. For example if your business resumes and income is still below normal amounts then extended business income would pay the difference for that time period.
Also, business income coverage will cover what is called extra expenses. This part of the coverage is for the cost to rent a temporary office space, lease computers or office machines, and installation of new equipment during the period of restoration. Just like business income, this is limited to the 12 months from the date of loss. The time limits on business income may seem like they are not long enough, but according to industry studies most businesses who don’t have this coverage do not reopen their doors.
Business income and extra expense is designed to help you through an uncontrollable event. Within the coverage of most policies it can prevent you from losing key staff members that otherwise would leave to find other employment due to the loss of a paycheck. This is a basic snapshot of the coverage for you to get a grasp of what it can do for your business. In most cases this coverage is already a part of your BOP policy. Many business owner’s look at it and think this could never effect their business, but in reality it can save your company. It will benefit certain types of businesses more than others, but it can help everyone. Retail Stores, Medical Offices, Restaurants, or anyone that operates out of an office location where customers come to you need this coverage. Contractors can also benefit from this coverage, but it is not as critical as locations where customers come to them to generate business.