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How Can Business Income Coverage Save Your Business?

Let’s imagine you had a store in a shopping center and a short circuit started a small fire that was quickly put out. Still, a wall of the store was hit by the flames as well as the shelves and some of your products. Because of this, you have to close for a few days to repair the damage and replace any lost stock.

Worse than suffering a loss in your company is having that loss extended for a long period of time. Have you ever thought if, in addition to having to pay for structural damage, you still had to shut down because of additional risks you become exposed to or any other necessary repairs?

Business Income Insurance, also known as Business Interruption Insurance, is coverage that is part of your Business Insurance. It helps to cover the loss of income when you need to keep the doors closed for a while due to a covered event.

This coverage can be part of either the Commercial Property Package or a Business Owner Policy, depending on the size and type of your business and can be of great importance during tough times. Learn about how it works.

What is Business Income coverage?

The types of financial losses for which coverage is typically offered include loss of business income and loss of incidental expenses.

Business Income is generally defined as net income plus fixed day-to-day operating expenses. Extra expenses are generally defined as expenses that are reasonable and necessarily incurred to avoid or minimize the period when the business cannot operate.

The time these coverages apply is called the restoration period. This period lasts from the time the damage forces your business to suspend operations until the damage is repaired.

How does it work?

There are two forms of Business Income:

  1. Business Income with extra expense
  2. Business income at no extra expense.

Extra expense is coverage that reimburses the insured for expenses incurred to keep a business running after a loss caused by a covered hazard. It reimburses your company for the money spent to avoid or minimize the closing of the deal. It only covers expenses that you would not have had the property not been damaged.

The No Expense form replaces the incidental expense coverage with a claims reduction coverage that covers expenses incurred by you to reduce losses, until the amount of the loss is reduced.

With either option, you can select:

  • Business Income including rental value coverage
  • Business Income without rental value coverage
  • Only coverage of the rental amount.

What is covered by Business Income?

Typically, a policy with Business Income coverage covers damage caused by:

  • Fire
  • Assault
  • Wind
  • Interruption by military or civil authority. When natural disasters occur, civil authorities can order evacuations.

If your business has been damaged and you need to close for a while, your insurance may cover:

  • Mortgage and rent payments
  • Employee salary and payroll
  • Loss of net profit or profit for the restoration period
  • Loan payments
  • Tax payments

What is not covered?

As with most insurance, Business Income does not cover every situation. It is important to know what the exclusions are so as not to have a non-existent indemnity.

Insurers have the autonomy to define what is included and what is excluded in coverage. However, the exclusions are usually as follows:

  • Acts of war, government seizure and nuclear risks
  • Extreme weather events such as earthquakes, floods and landslides
  • Certain operating expenses such as marketing, insurance and funds allocated for research and development
  • Epidemics, diseases and viruses

The cost of business revenue coverage may vary depending on the industry involved and the location of the business. A company located in areas at risk of natural disasters, or in a region with many incidents of theft, or even where the core business itself exposes you to risks, will likely have higher premiums.

Extended Business Income

Both forms of Business Income contain additional coverage. One is the Extended Business Income, which covers the loss of revenue from your business, even when it resumes, until it is re-established, but for no more than 60 days from the date of business resumption.

Coverage Options

There are also several optional coverages included in the Business Income coverage forms:

Extended period of indemnity – extends coverage for the additional days specified in the claims.

Maximum period of indemnity – indemnifies no more than the amount of loss incurred during the first 120 days following the direct loss.

Monthly limit of indemnity – you select a fraction that is multiplied by the insurance limit to determine the maximum that could be paid every 60 days

Agreed value – establishes an annual amount of agreed coverage

Business Income from Dependent Properties

This is a variation of the Business Income form that provides coverage in the following situations:

  • If you depend on another company as the sole supplier of goods or raw materials, you could suffer a loss if your supplier is forced to reduce or eliminate deliveries because of a direct physical loss.
  • If your business depends on a specific company as the main buyer of your products and due to some physical loss they can no longer buy from you causing you losses.
  • If you depend on a manufacturer to deliver certain products or components to your customers under a sales contract and the manufacturing site is unable to fulfill the contract due to direct physical loss.
  • If your company depends on another to attract customers to your own business.

Protect your business with BRZ

If you’ve come this far, you’ve certainly understood the numerous risks that your company can run throughout its operations and how the lack of planning (and insurance) can bring greater losses than the event causing the damage. You have probably also realized that certain insurance policies can save your operations in different ways.

Speak with  a BRZ agent to protect your company and find the best policy for your company’s situation. Our professionals are specialized and ready to answer all your questions and guide you to choosing the right coverage for your business.

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