Understanding the Business Income Definition
Business income insurance, sometimes known as business interruption insurance, helps cover the loss of business income if you can’t operate because of a covered peril. Covered causes of loss can include things like:
For example, say your office building catches on fire. As a result, you must close your business while you repair the damaged property. This insurance can help cover your lost income and expenses during this time.
Most small businesses can benefit from a business income insurance policy. This coverage helps pay for lost income if your company has to shut down due to a covered loss, like a fire.
- Fire
- Theft
- Wind
For example, say your office building catches on fire. As a result, you must close your business while you repair the damaged property. This insurance can help cover your lost income and expenses during this time.To fully understand your business income insurance coverage definition, you’ll need to understand these key terms:
- Actual loss sustained: This refers to the monetary payment you receive from insurance covering the actual loss of income to your business.
- Business income: This includes any income that would result from regular business activity.
- Period of restoration: The amount of time that your business is unable to operate after a loss.
- Waiting period: The amount of time that must pass following a covered cause of loss before business income coverage begins.
- Extra expense: In some cases, you may encounter extra expenses when your business is temporarily closed for repairs and you have to move. This can also include the cost of expedited shipping on a replacement order of your business’ inventory.
- Service interruption/contingent business interruption (CBI): This refers to the interruption in your operation or the shutting down of your business due to a property your business depends on suffers a loss or if your company loses power because of damage to the utility company’s property.
- Interruption by civil authority: When natural disasters strike, civil authorities may order evacuations. You may have to shut down your operation as a result. Depending on your policy, your business income insurance can help cover your lost income when you’re interrupted by civil or military authorities.
What Does a Business Income Policy Cover?
Your business income coverage, also known as business interruption coverage or extra expense coverage, can cover lost income when you need to close your business suddenly. This coverage applies an extra layer of protection beyond general commercial property insurance.
Your policy can also include extended business income coverage to help protect your business from a slowdown after your business reopens.
For example, it took four months to repair your restaurant after the kitchen fire. After you reopen, you have lower sales than before the fire shut down your restaurant. Extended business income can help cover your lost income due to the slowdown after you reopen.
Examples of Business Income Coverage
To better understand how business income coverage can help replace your lost income, consider these scenarios:
- Your candy shop is in an attached building. A fire breaks out in the store next to yours and it spreads to your business. As a result, you have to shut down to repair the damages.
- After you close your computer store for the day, thieves break in and steal valuable inventory. As a result, you have to temporarily shut down while you replace your inventory.
- A hurricane hits in your area, causing extensive wind damage to the building where you operate your sports equipment store. As a result, you must shut down your operation to repair the damages.
The payout amounts you receive on your business income coverage are based on your business’ income and expense records. As a business owner, you should store these records in a safe location. You may even want to store them off-site or in digital locations.
What Is Not Covered by Business Income?
Business income insurance won’t help cover lost income in the event of:
- Closures from inoperable power lines. Adding an endorsement to your policy can help cover this.
- Losses from closures caused by damages not covered under your insurance policy.
- Income that isn’t documented.
It’s important to note that business income insurance may not also cover all of your business’ utilities.
Common Questions About What Business Income Is
What Is the Purpose of Business Income Insurance?
Most small businesses can benefit from a business income insurance policy. This coverage helps pay for lost income if your company has to shut down due to a covered loss, like a fire.Does Business Income Coverage Include Payroll?
Yes, business income coverage can help pay your operating expenses, like payroll, while you’re shut down temporarily from a covered loss.
Does Business Income Coverage Have a Deductible?
In most cases, business income coverage doesn’t have a monetary deductible. However, there is sometimes a time deductible. Some insurers may have a waiting period up to 72 hours after the covered loss occurs before coverage starts. Our business income coverage has a zero hour waiting period, so coverage begins immediately after covered property damage.
Who Needs Business Income Coverage?
If your business has a physical location with products, services or equipment, you can benefit from this coverage.
Get a Quote for Business Income Coverage
To learn more about business income coverage, get a quote today. We’re an experienced insurance company that you can count on. Our specialists can work with you to get you the policies you need at the right price. We can also help teach you how to reduce your risk exposure. Whether you have questions about business insurance or need help with a claim, we’ve got your back.