Why Your Business Clients Need Loss Of Income Coverage

Does my business have enough insurance coverage? This is a  question frequently posed to insurance agents during the quoting process. Like many things in life, the answer to this question is, it depends. It depends on a lot of things that are unique to you as a business owner and the industry you operate in. Once you think you have enough coverage for your business it is important to ask your insurance agent if you need business loss of income insurance coverage.

Most insurance agents deal with a slippery slope of juggling the difference between getting their clients the absolute best coverage and finding them the best rate on premium.  Dealing with this slippery slope is what ultimately determines success or failure among insurance agents.  The best way as a business owner to help your agent get you what you want is to be open and honest with them about what are your priorities. These insurance agents interact with a lot of people from many different walks of life. One client they may be helping is a farmer while the next client is a financial consultant. The risks that these businesses face are dramatically different. some business owners may value getting the quoting process finished so they can get back to their work. Another business owner may want the minimum amount of coverage and they do not mind if it takes a week for them to save 10%. Most businesses are somewhere in the middle, but it is important to tell the agent what you value early in the process.

Most businesses start their insurance coverage with general liability and workers compensation coverage. This is because these two policies are required by law for most businesses in most states. Many business owners attempt to scrape by with the bare minimum amount of coverage and they do this in an attempt to save money on premium. This can save money on the front end (when a business pays insurance premium), but it can come at a great cost to the business when a disaster strikes. This is when business loss of income insurance coverage can benefit your business immensely.

Business loss of income insurance coverage is an addition to a commercial property policy. For most small businesses, it can be added for as little as a few hundred dollars. This coverage kicks in when a covered loss causes the business to lose income because of a slow down or close of business while the property is repaired. A fire is a common time when this coverage is needed. When a fire occurs at a businesses location there more than likely will be a time when the business is not able to be open for business. During this time there are still bills coming in that the business is responsible for. There are also still customers who may be expecting products and services to be delivered or performed.

From the perspective of an insurance agent, this can be difficult to explain to a business owner. This is especially true when the business owners is in a hurry during the quoting process.  On the contrary, the lack of this coverage can also be one of the most difficult conversations to have with a business owner after a fire has occurred. Many times it is not until this time that a business owner understands it may not have been the best idea to rush through the insurance quoting process.

When selling a business loss of income insurance coverage policy, it is important for the insurance agent to notify their client that business loss of income insurance coverage only kicks in if the loss was a covered loss. This means if a loss was not covered by one of the insured’s other policies, it will not initiate the business loss of income policy. This is where it is especially important as a business owner to not rush through the quoting process and it is equally important to not skimp on coverage. It is within your right to only purchase General Liability and Workers Compensation coverage, but that does not mean it is usually the best business decision. Even if you are a business owner who is comfortable with a healthy amount of risk and you are cash strapped, it is usually a better decision to find a way to pinch pennies in some aspect of your business other than the insurance coverage. This is where it is especially important to partner with an  independent insurance agent, to be thorough when you are quoting the policies and and consider adding a business loss of income insurance policy.


Q&A with Tim Davis

Q&A with Insurance Expert Tim Davis


What are the most significant Weather Related Risks for Small Businesses?


What’s the biggest mistake small business owners make when it comes to safeguarding their businesses from weather-related interruptions and why is that a problem?

The biggest mistake small business owners make is failing to buy business interruption coverage. This coverage is not a stand-alone policy, but is typically included on a business owners’ package (or BOP) policy. The Hartford has some of the best coverage available on their business interruption coverage as a part of their BOP policy, but several other carriers offer great coverage as well.

How can we know if we need flood insurance in addition to business interruption coverage?

Flood insurance will not only provide coverage to replace the damage to your building, but the business interruption coverage won’t respond for flood-related losses if you don’t have flood insurance in place.

What’s a common misconception about business insurance related to weather issues and what’s the truth? 

As highlighted above, business interruption coverage won’t apply to all weather-related issues. Whatever peril (or risk) caused the business interruption must be a covered peril on the BOP policy. If an earthquake caused the damage and interrupted your business, but you didn’t have earthquake coverage on your policy, then coverage for the earthquake damage wouldn’t exist.

Another common myth centers around off-premises power failure. If a weather-related event causes power to fail at a location away from your business (like a blackout or a transformer a mile away gets struck by lightning) … business interruption coverage won’t apply. With most policies, the weather-related cause of the power failure must happen at your business.

Do we need special coverage to protect from wildfires, or will traditional property & casualty cover us? Why or why not? 

A wild fire would be a covered cause of loss on many commercial property policies, but it is not guaranteed.  I would recommend reading over your policy – identify covered causes of loss as well as exclusions in the policy.

What kind of protection do we need related to employees and customers who might be injured on our premises during a weather event?

Your standard workers compensation insurance (for employees) and general liability insurance (for your customers) policies should suffice. These two policies should be enough to protect your business from incidents that occur on your premises.

What documents should we be sure to store safely to make the claims process go faster after a weather disaster strikes? Please describe each document and why it’s important.

Financial records will be the most helpful piece of information to provide to simplify the claims process. Carriers will evaluate the income losses your company sustained based off the company’s past sales history and reasonable projections of your company’s profits and losses for the time your company suffered from the weather-related interruption.  Policy information – including agent and carrier contact information.  Also, it is good to take pictures of the equipment in a building – including serial numbers.  This helps with replacement parts and valuation.

What phone numbers should we keep on hand in the event of a weather emergency and why? 

Make sure you have either your insurance agent’s number on hand, or (even better) the claims reporting phone number for the insurance carrier on your business owners’ package policy.  I would also consider having phone numbers for emergency response/clean up companies.  In the event of a major weather event, it is smart to have a few companies to choose from – maybe even consider a company from a neighboring community so that they are less likely to be impacted by the same weather event.

What’s the first thing we should do if our business is impacted by a weather event and why? 

Life safety is the very first concern – make sure that all employees and guests at your premises are accounted for and safe.  Then, secure your building and business personal property.   If you can help prevent further damage by taking additional steps, those extra expenses can be covered in some policies.

What else should small business owners know about preparing for and responding to a weather disaster? 

A proper BOP policy with business interruption coverage will provide a real sense of relief in the aftermath of a disaster. Loss of business income is the #1 reason that most businesses do not open after a serious loss. This coverage will help provide coverage for the actual income loss sustained; the net income (net profit or loss before income taxes) that would have been earned over that period; and provides costs for things like payroll so you can keep your employees while your company rebuilds.  Be prepared – think ahead – develop a contingency plan.  If something happens, have a plan already in place and make sure that everyone in the business is aware of what steps to take.

What other questions should I ask my agent about this coverage?

Check the time period you have for extended business income. Thirty days is standard coverage, but some carriers can offer up to 12 months by endorsement. Also ask your agent if you need contingent business interruption coverage — this pays out when your company is unable to operate because of an event like a natural disaster that damages the business of one of your suppliers or customers, which causes your company to lose income.



Types of Business Insurance

The other day I was going through my emails at work and I notice something that I hadn’t really noticed before. In the past couple months, I have received numerous emails from clients asking what different insurance policies cover and what additional coverage they need. After replying to each individual email, I came up with the great idea to create a template that briefly explains the different kind of business insurance policies a business owner might need.


What Types of Business Insurance Are Available?

The main types of business insurance you should consider include:

  • Property and Casualty Insurance: Property insurance covers the physical location of the business (even if it is rented or leased) and its contents from things like fire, theft, flood, and earthquakes—although read the terms carefully to make sure they include everything you need. Casualty insurance, on the other hand, covers the operation of the business, but the two are usually grouped together in policies.
  • Commercial Auto Insurance: Commercial auto insurance covers your business for loss or damage to vehicles used by your business and for damage to others caused by your business vehicles. Note that vehicles used for business are not covered under your personal auto insurance policy even if a vehicle is used for both business and personal purposes.
  • Liability Insurance: Liability insurance covers you in the event someone sues you for negligence, which can occur, for instance, if someone falls on your property.
  • Product Liability Insurance: Product liability insurance covers your business for damages caused by a product designed, supplied, or manufactured by your business.
  • Business Interruption Insurance: Business interruption insurance can make up for lost cash flow and profits incurred because of an event that has interrupted your normal business operations.
  • Health Insurance: Health insurance provides health coverage for you and your employees.
  • Life and Disability Insurance: Life and disability insurance covers your business in the event of the death or disability of key owners, partners, or employees.
  • Workers’ Compensation Insurance: If you have employees, you must, by law, participate in workers’ compensation programs; workers’ compensation insurance covers employees if they are injured on the job.


            I get it! Trying to find the perfect coverage at an affordable price is extremely difficult. If you are a new business owner or even a business owner who hasn’t gotten any insurance before, it can be complicated. Not knowing what each term means in a policy is frustrating. That is why I provided a brief description of the basic policies that business owners frequently purchase. Never be scared to call a professional and ask them for more advice. And always make sure you are reading the exclusion page on your policy. You want to make sure you are properly covered for your job. The last thing you want is for something to happen, and realize something isn’t covered under your policy.