Physical damage is not repaired by this coverage; that is the responsibility of your property insurance. Rather, it helps pay for essential costs during the time when your business is halted and replaces the lost revenue. Consider loan payments, rent, utilities, salary, and even short-term moving expenses. Business income insurance might assist you in surviving the financial storm if the reason for the shutdown is covered by your commercial property policy.
What It Covers and Doesn’t
Despite its strength, business income insurance is not a panacea. It has limitations, just like any other policy, and understanding what is and is not covered is as crucial.
Typical Exclusions
Your business income policy will not cover a hazard like a flood, earthquake, or mudslide if your property insurance doesn’t. To be protected against these high-risk occurrences, you will require supplemental coverage.
Even in “all-risk” policies, losses resulting from viruses, pandemics, or infectious diseases (like COVID-19) are nearly always not covered. Indeed, even after 2020.
Unless you have extra utility service interruption coverage, broken equipment and utility outages (such as the loss of water or power) are usually not covered. In the event that downed wires or broken mains result in financial loss, this can reimburse you.
What is Included
What you can typically rely on is as follows:
Salary, commissions, and pay for employees
Rent and loan payments are examples of fixed operating costs.
Taxes
earnings that you would have made from regular business operations
Costs associated with moving and replacing equipment, including training
Running expenses from a temporary location
Pro Tip: In this case, your financial records are your greatest ally. Income and expenses will not be covered if they are not properly documented. No refund if there are no receipts.
What Is the Duration of Coverage? (Suggestion: It is Not Permanent.)
You can get payments while your business heals during the “restoration phase,” which is covered by business income insurance. The majority of policies last 30 days, but if your company is complicated or difficult to quickly rebuild, you can extend it up to 360 days.
The worst part is that, even if you are working out of a temporary location the size of a shoebox and your original space is still in ruins, payments cease as soon as you reopen.
Remember the “Extras.”
It is possible that your typical company income insurance will not cover everything you will require in the real world. In this situation, additional expenditure coverage can be really helpful. It covers expenses that keep you running, even if they are not strictly required to make up for lost revenue.
Think:
Renting new computers or furniture
Paying overtime or employing temporary workers
Renting out emergency supplies
Paying for increased expenses at a temporary site
What If It is a Buyer or Vendor Instead of You?
You can add Contingent Business Interruption (CBI) coverage in case your company suffers due to the closure of a major supplier or buyer. For manufacturers or wholesalers who rely significantly on a small number of suppliers, factories, or retail locations, it is extremely beneficial.
CBI is closely related to your property coverage and usually needs physical damage to the third party’s site. Again, no reward, no covered hazard.
BOPs: An Affordable Safety Net for Small Companies
A Business Owner’s Policy (BOP) is probably the best option if you own a small business. It combines property insurance, company income coverage, and general liability insurance into one reasonably priced package.
BOPs make it easy to add extras (like utilities or flood coverage) and are made to be economical without sacrificing quality.
Hope for the Best Plan for the Worst
It makes sense to have business income insurance. However, it is far more prudent to have a plan for catastrophe recovery and continuity. When a calamity strikes, having a good plan enables you to respond quickly, which reduces losses.
Prior to purchasing a policy:
Examine all of your sources of revenue.
Maintain thorough records of your operating costs.
Talk to an insurance expert about exclusions and extensions.
Consider the future: Would you have to relocate? Staff replacement? Restructure your supply chain.
The Bottom Line: Not only do disasters never arrive with warning,
they are rarely fair. Although it cannot stop the storm, business income insurance can prevent your company from going bankrupt. This coverage lessens the impact of a fire, windstorm, or local government-mandated shutdown so you can concentrate on reconstruction.
So don’t treat business income insurance as an optional extra. Consider it a kind of money parachute.
