Why ‘Business Income Coverage’ may be the most important insurance coverage you haven’t considered yet (but you must!)

You probably know that business income is the net income that includes your net profit or loss before calculating the taxes. You would factor in all your revenues on one side and, on the other, the continuing normal operating expenses incurred, which include payroll. Of course, without earning enough income or profit, any business will falter. But what if something bad happens?

For instance, think of the scenario when a severe storm like Sandy passes through your business area and creates unprecedented damage? Think wind damage or storm damage. This could lead to damage to the property where your business is located. Your business may become inaccessible to your customers, as well as your employees. You may have no other option but to suspend operations. Even if you do have the capital needed to fix some of the damages (an added expense in itself), there are some losses that can’t be recovered. Think lost inventory, opportunity costs, and possible impact on your brand perception. Is there something you can do to guard against these losses?

Business income insurance, also known as business interruption insurance, is the right support that business owners must consider to overcome unforeseen issues like this. It is a type of coverage, which helps businesses address some of the losses that arise due to a business’s disruption in the face of property damage.

How does Business Income Coverage work?

Business income coverage will help you cover several expenses, in the event your business comes to a standstill due to an unexpected event that leads to revenue loss. You can use it to cover a wide range of the costs such as paying additional bills and expenses due to the damage incurred. These may include:

  • Any revenue that was lost due to the closure
  • The business relocation expenses
  • Fixed expenses or costs including the rent or any payroll

More often than not, the claim fulfillment process starts after the damaging event and has a short waiting period. This is usually 3-4 days for most of the policies. Usually, no losses to the business income are covered during this period starting from the time of the loss.

So, what makes this additional coverage a must for your business?

Essential Pointers That Makes Business Income Coverage Indispensable for Your Business

  • Business income coverage is usually not a stand-alone policy. You can get it as a part of a broader policy. The choices are many but a good agency can leverage their experience and expertise to help you select a policy such as a Business Owner’s Policy or by adding to an existing Commercial Property Insurance.
  • You should opt for this coverage especially if your business relies on various physical assets to operate. For instance, if you have a retail, wholesale, manufacturing or restaurant business, this is the perfect choice for you. Apart from this, even if you run services from a premise such as a hair salon, this is a perfect add-on.
  • This coverage pays for an actual loss of business income owing to the suspension of business operations during the period of its restoration.
  • If your business is located in areas that are prone to frequent natural disasters, this will be even more essential for you.
  • You can take this coverage into consideration, especially if your business includes heavily customized, expensive equipment and machinery that is going to be time-consuming to repair or replace once damaged.
  • It is necessary to remember that the loss or the damage to the business should result from any of the covered causes of the loss in the commercial property insurance policy (or any other policy for the coverage add-on). In other words, the perils that are mentioned in both the cases, need to be identical. For instance, if flood is covered in the insurance but not fire, then the business income insurance coverage will not include fire.
  • Since business income coverage helps cover fixed expenses including utilities, employee salaries, rent, etc., you can use it to help you build in protection to retain some of your top-performing employees and also, pay for the rents or bills that you need to pay for even though the business is yet to restart. This way, you don’t need to begin everything from scratch.
  • You will get a period of restoration, wherein the insurance firm may compensate for the business for the lost income. This period is the time that will be needed to repair, replace or rebuild the damaged property or shift to a new premise and reopen the businesses. Policies usually take into consideration a relatively short duration for this purpose.  
  • Once the business income coverage becomes active, the insurer will offer you the coverage based on several factors. Also, the cover should pay for the loss of the business income when there’s a required suspension of business operations during the restoration period.

That said, you must also remember that this coverage will not cover the usual business risks like loss arising from business decisions, poor management, changes in customer preferences or economic downfalls.

These are some of the crucial features and benefits of business income coverage. If this is not something you have thought about yet, the time is now to swing into action. There’s still time to get prepared for the summer and possible weather-related business disruptions!

To get a better perspective about the coverage or any other commercial insurance that can help your business, get in touch with us today!