Business income insurance covers business earnings in the event of an interruptive loss. While the policy language can get be slightly complex, it’s a simple concept… your insurance company is providing you with a pot of money to help your business recover following a covered claim.
While this is certainly an over-simplification of an increasingly intricate insurance policy, it helps to understand the purpose before diving into the legal language of the contract.
The ISO forms state that:
Coverage is provided for net income (net profit or loss before income taxes) earned or incurred. Coverage is also provided to continue normal operating expenses incurred, including payroll.
Think about your Profit and Loss statement, if it would suffer because of a loss covered by your insurance policy, you should consider Business Income insurance.
The standard policy that provides coverage is referred to as the Business Income and Extra Expense (BI with EE) Coverage form. A separate coverage form referred to as the Extra Expense Coverage form is also available, but we’ll focus on the more comprehensive BI with EE form for now.
There are number of considerations for business owners looking at this coverage option:
- Profits: how would they be impacted if your business were shut down for any length of time?
- Fixed Costs: what operating costs and other fixed expenses would continue, or would you want to continue (think payroll – can you afford to lose your best people because you can’t pay them while you’re shut down?) after a loss occurs.
- Temporary Location: could you minimize the amount of down time you suffer by moving your operation to a temporary location? If so, what amount of expense would you incur to achieve this?
- Contingent Business: is your business so heavily dependent on another business (think supplier) that you would suffer a serious hit to your income if that business sustained a loss?
What coverage is best suited to your needs, the limit that’s adequate to protect your operations, whether you should include Extra Expenses… these are all great questions to review with your Insurance Advisor prior long before your business is shut down.Tip. Use a Business Income worksheet to determine coverage.
A business income worksheet establishes coverage amounts of business interruption insurance. This establishes dollar amounts of coverage with no uncertainty. The help of your accountant in preparing a worksheet can prove incredibly valuable at the time of a claim.
If you’d like to learn more, contact one of our Licensed Advisors or complete the form above. We’re here to help.
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