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Business income insurance in 2023. What is business income insurance?

Business income insurance in 2023. What is business income insurance?

Suppose a business suffered a fire and had to stop trading. In a situation like that, the business' revenue may decline or stop altogether.

While property coverage will protect the business from physical damage, business income coverage could protect against financial losses when the company cannot operate.

Table of contents

  • What is business income insurance?
  • Who can benefit from business income insurance?
  • What does business income insurance cover?
  • What is not covered by business income?
  • What expenses are covered by business income?
  • Examples of business income coverage
  • Additional options and endorsements
  • Business income insurance key terms
  • Business income insurance FAQ
  • Business income insurance cost

What is business income insurance?

Business income insurance (or business interruption insurance) can cover lost income when a company cannot operate due to specific perils covered in the policy.

For example, during an extended business closure, business income policies can provide financial support to cover rent and pay employees.

Business income insurance, property, and liability insurance are often included in a business owner's policy (BOP). Purchasing a coverage bundle is usually cheaper than buying the policies individually.

Who can benefit from business income insurance?

Business owners providing products and services from physical locations would benefit from this coverage.

For example, the owners of a cafe, an auto agency, and a hairdresser could all use income insurance if their business was interrupted by property damages.

What does business income insurance cover?

The closure of your business must result from covered perils for business income to pay for the expenses as specified in your policy.

Possible covered perils might include:

  • Theft
  • Fire
  • Wind
  • Lightning
  • Falling objects

What is not covered by business income?

Damages caused by the following risks are typically not covered:

  • Communicable diseases
  • Earthquakes
  • Floods

In addition, business income won't help cover lost income in the event of:

  • Income that has not been documented and accounted for.
  • Losses caused by damages not covered under your insurance policy.
  • Closures due to broken power lines. This can be covered by adding an endorsement to your policy.

Note: Business income insurance may not cover all of your business utilities.

What expenses are covered by business income?

Generally, business income insurance will help cover business losses and operating expenses until they reopen.

All policies vary, but the following costs are commonly covered:

  • Taxes
  • Loan payments
  • Routine bills
  • Payroll expenses
  • Lost net income
  • Temporary relocation expenses
  • Mortgage, lease, and rental payments

Note: The amount of lost net income is based on the business's financial records.

You may be asked to provide information such as your sales records, profit and loss statements, tax returns, and payroll records to determine the income and expenses.

Examples of business income coverage

Consider these common scenarios to understand how business income coverage can help replace your lost income.

  1. Your pub operates below a flat. A fire breaks out upstairs and spreads to your business, causing you to close your business to repair the damages.
  2. Thieves break in and steal valuable stock from your business. As a result, you must temporarily close your business while replacing your inventory.
  3. Extensive wind damage breaks the windows of your business building. As a result, you must temporarily close to repair the damages.

Note: The business income payout amounts you receive are based on your business's income and expense records.

You should store these records safely and may even want to store them off-site or in digital locations.

Additional options and endorsements

Depending on the policy terms, you may be able to expand your insurance and add the following coverage.

Extra expense coverage

This coverage can help with expenses that would fall outside your regular day-to-day expenses.

For example, if you had to rent a temporary business space, lease any equipment, or have additional payroll expenses for overtime staff. Extra expenses can cover other costs not covered under your normal business income policy.

Dependent properties coverage

This coverage protects against loss of business income from damages to property you depend on but don't own. Dependent properties coverage (or contingent business interruption) will cover costs if you have to shut down your business.

For example, it could provide coverage if a fire destroys your main supplier's warehouse and you can't manufacture your products as a result.

Civil authority coverage

This type of coverage applies when a government entity restricts access to your business premises due to damage to a nearby property not owned by you.

Utility services endorsement

This endorsement coverage could cover lost income resulting from disruptions to basic utilities such as gas, electric, or water services.

Business income insurance key terms

Following on from additional options and endorsements, it will be helpful to understand these key terms to better understand what business income insurance covers.

  • Business income: Any income that results from regular business activity.
  • Extra expense: This includes the cost of expedited shipping on replacement orders. Sometimes, you may also have extra expenses if your business is closed while renovating and if you have to move as a result.
  • Period of restoration: This is the amount of time you cannot operate after a loss.
  • Actual loss sustained: The payment you receive from insurance that covers the loss of income to your business.
  • Waiting period: This is the amount of time that must pass following a covered cause of loss before your business income coverage begins.
  • Interruption by civil authority: This is for cases of natural disasters if civil authorities order evacuations. You may have to close your business as a result. Depending on your policy details, business income insurance can help cover lost income if you're interrupted by civil or military authorities.
  • Service interruption/contingent business interruption (CBI): This refers to business interruption if you shut down due to the loss of power or other losses caused by damages to a company your business relies on.

Additional points

Your business income coverage can pay for cases of income losses when you suddenly need to close your business. This type of coverage adds an extra layer of protection beyond commercial property insurance.

Generally, business income works alongside commercial property insurance. However, suppose a weather event severely damages your restaurant's windows, and you cannot open for weeks.

The repairs will be covered by a commercial property insurance policy, whereas a business income policy could cover income losses during the business' closure

Your insurance policy can also include extended business income coverage to protect against a slowdown after your business reopens.

Business income insurance FAQ

How long does the coverage last?

A business income policy will cover specified expenses for a certain amount of time or restoration periods. According to the Insurance Information Institute, the common restoration period is 30 days but can be extended to 360 days.

It's common for most policies to have a waiting period between the property damage and the start of the restoration period. While policies vary, that can be anywhere from 24 to 72 hours.

How will the amount of my lost income be determined?

Business income coverage usually includes the estimated net income (profit or loss) and normal operating expenses.

Your insurance agents will work with you to determine whether you have sustained an actual loss.

Does business income coverage include payroll?

Yes, while temporarily closed from a covered loss, business income can help pay your operating expenses, such as payroll.

What will I need to provide to support my claim?

The specific documents and information required to support a business income claim vary, but the types of information needed usually include the following:

  • Rent rolls
  • Sales records
  • Payroll records
  • Income tax returns
  • Profit and loss statements

Is business income subject to a deductible?

Business income is subject to either a waiting period (for example, the first 48 hours after the damage that caused the closure) or a monetary deductible.

In most cases, business income doesn't have a monetary deductible. However, there is sometimes a time deductible.

What happens if I continue to experience income losses after reopening?

Business income coverage only applies during the restoration period. If you have resumed business operations, the restoration period has ended.

However, if your policy includes extended business income coverage, you may be covered for a continued loss of income after the period of restoration has ended.

Key takeaways

Business income coverage is also known as business interruption coverage. It helps cover lost income when a company cannot operate due to closure.

Many business owners would benefit from business income insurance if they were interrupted by property damages.

To be covered by business income, the closure of a business must result from covered perils as specified in the policy. Possible covered perils include theft, falling objects, and some weather events.

A policy will typically help cover the operating expenses of a business until they can reopen, such as utility bills and payroll expenses.

Depending on the policy terms, you may be able to expand your insurance and add extra coverages and endorsements.

Business income insurance can also include extended business income coverage to protect against a slowdown after your business reopens.

Business income insurance cost

As with most insurance policies, an insurer performs a risk assessment to determine your premium amount. The cost of your policy depends on several factors.

  • The type of business. A business that faces higher risks generally pays higher rates.
  • The number of employees. The more employees, the higher the premiums.
  • The business location. Locations with fewer risk factors will pay less.
  • The coverage amount. Generally, this amount is based on the estimated annual income and the time it would take to repair the damaged property and reopen the business. The more coverage you buy, the higher the premiums.
  • Prior claims history. If you have made business income insurance claims in the past, your premiums will be higher.

Business income insurance quote

Whether you have a question about business insurance or need help with a claim, we're here to help. Get an accessible business quote today to learn more about business income coverage.

With 35 years of experience, Pitsas Insurances can guide you to find the best business insurance according to your specific needs and budget constraints.

Business insurance USA

For companies registered in the USA, you can receive quotations from Progressive Commercial.

Business insurance UK

For companies registered in Britain, you can receive quotations from Simply Business.

Business insurance Cyprus

For companies registered in Cyprus, you can receive a quotation from Pitsas Insurances by completing the quotation.

If you have more questions, contact our insurance experts and work with a licensed agent to determine your needs. We offer a fast turnaround.

To find out more about how our team of insurance experts can help you, see here.

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