Most businesses put an emphasis on obtaining liability and property insurance coverage when opening a new business but few businesses think about how to keep their business afloat if something happened that would force their business to be temporarily closed. This is where Business income (interruption) coverage also known as business income coverage , can help with operating expenses during the period of restoration.
Business interruption coverage includes:
- Lost net income (based on financial records)
- Mortgage, rent and lease payments
- Loan payments
- Employee payroll
Business income interruption insurance does not cover:
- Broken items resulting from a covered event or loss (such as glass)
- Flood or earthquake damage, which are covered by a separate policy
- Undocumented income that’s not listed on your business’ financial records
- Pandemics, viruses, or communicable diseases (such as COVID-19)
After a major disaster, it can take more time than many people realize to get “back in business.” When talking to your agent about this coverage, keep in mind two concepts that would come up in the conversation:
- Restoration period: This is the length of time that a policy will help pay for lost income and extra expenses while the business is being restored.
- Waiting period: Typically, there’s a 48 to 72-hour waiting period before the period of restoration kicks in.
The standard property policy limits the business income restoration period to 30 days, but this period can be extended to 360 days by endorsement.
Business owner policies usually combine property, liability and business income coverages for most small businesses and it is best to package these coverages under one company for best rates. However, some businesses may not qualify for a BOP policy and therefore could not package all these coverages under one policy. In this case, it is important to make sure you purchase business interruption separately. An endorsement or rider can be added to a commercial property insurance policy that will extend the policy’s coverage to business income (interruption) losses.
A common question as we you discuss this coverage with your agent would be usually about how much coverage you need. A good rule of thumb is to use a business’s gross earnings and projections to estimate future profits and determine the right amount of coverage. Remember, if business income (interruption) costs exceed the coverage limit chosen, the business owner will have to pay out of pocket for any extra expenses.
The cost for this coverage and endorsement depend on the industry, Industry, number of employees, amount of coverage, location and prior claims.
Like every insurance policy and endorsement, there are limitations to the coverage. For example, if a business owner obtains business interruption coverage as part of a commercial property policy, the coverage will only extend to events delineated in the core coverage. If the property insurance does not cover flood damage, the business owner cannot receive business income (interruption) insurance if the company is displaced because of a flood. There are also time limits on business income (interruption) coverage, so business owners should be sure to discuss limitations and exceptions with their insurer or insurance professional.