Insurance 101 – Business Income Coverage


Owning your own business can be a rewarding
experience. There are many perks to being your own boss, but there are also many responsibilities.
Your employees, your customers, and your vendors all rely on you to keep your business operational.
Let’s say your manufacturing business suffers a fire. Your building and its contents are
a total loss. Without a building, your employees are unable to return to work. Without your
employees, sales orders go unfulfilled. When they don’t receive their orders, customers
resort to taking their business elsewhere. While it may only take a few months to rebuild
or establish your business elsewhere, the loss of income during that time could take
months or even years to recoup. This is where Business Income Coverage becomes critically
important to a business owner. First, let’s define Business Income Coverage. Business
Income Coverage covers the business income lost when your business operations are suspended
due to a direct physical loss of property on your premises resulting from a covered
cause of loss. Unless all three of these requirements are met, Business Income coverage will not
apply. Business Income Coverage is sometimes called Time Element Coverage because it provides
coverage for loss of business income over a specific time span called the Period of
Restoration. The Period of Restoration begins 72 hours after the loss, and ends when either
the business is rebuilt or resumes at another location. For example, we noted earlier your
business has suffered a fire. It happens on a Saturday afternoon and causes extensive
damage. However, you are able gather enough stock to reopen your business at another temporary
location on Monday. Because it has not yet been 72 hours since your loss, you have not
yet entered the Period of Restoration, so you would not be covered for any income lost
on Saturday and Sunday. There are two types of Business Income Coverage: with extra expense
and without extra expense. Business income with extra expense coverage helps pay for
extra expenses you incur to keep your business operational after a loss caused by a covered
peril. This coverage kicks in immediately after the loss occurs and can cover expenses
such as moving costs, renting temporary premises, and renting or purchasing temporary equipment
that does not replace equipment which is already part of your inventory. So in our fire example,
while you would not recover the lost income from Saturday and Sunday, you would be reimbursed
for the moving expenses because they will allow you to be operational while you rebuild
your business. The second type of Business Income coverage -without extra expense
– does not include coverage for extra expenses incurred to keep your business operational
after the loss, leaving you to cover those expenses. For businesses that require more
specialized coverage options, there are several coverage add-ons available to help meet your
needs. These include changing the period of restoration, extending the length of time
you can receive benefits from the Business Income policy (called the Period of Indemnity),
or limiting or excluding payroll expense of your employees. Sometimes, a business may
suffer an income loss involving a unique set of circumstances that are excluded on the
Business Income policy. Endorsements are available to help you address situations such as a delay
in rebuilding due to an ordinance or law, or a disruption in utility services. Your
independent insurance agent can help you determine which coverages are right for you. Contact
them today about the vital protection Business Income Coverage provides to help your business
recover after a loss.

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About the Author: Oren Garnes

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