Does your commercial property insurance policy provide coverage for business income loss? It’s an important question to ask your insurance provider. There is an endorsement that can be added to your property policy that will protect loss of business income that may be sustained as a result of direct loss, damage, or destruction to your property by a covered threat or hazard.
There are a few basic terms that are important to understand when reviewing the endorsement to your policy; actual loss, business income and period of “restoration.”
• Actual loss sustained: This term defines the actual loss suffered by the insured as a result of damage to your property or a direct physical loss as a result of a risk or hazard that is not excluded from the policy. Your insurance provider is obligated to pay if you experienced an interruption of business that led to a business income loss. If you do experience an income loss to your business, your insurance provider’s responsibility would be equal to the actual dollar value of the said loss, but would not exceed the limit provided within your policy.
• Business income: Normally, your insurance provider is responsible for the decrease in income that occurs as a result of interruption of business operations due to a physical loss sustained at your place of business. When defining what amounts can be included when calculating the amount of loss incurred, it is helpful to understand a commonly used definition of what business income includes, which is the net profit or loss a business realizes before any expenses or other financial obligations are deducted, which may include payroll.
• Period of restoration: Your insurance provider is responsible for the reduction of business income incurred during the period of restoration only, which would be the amount of time it takes to replace, repair, or rebuild the damaged property. This defined period begins when the actual loss or damage takes place and ends when the property should be replaced or repaired with a reasonable rate of work occurring.
In addition to coverage for loss of business income, the endorsement of the business property policy may provide additional coverages. “Extra Expense” would be an example of additional coverage. This term is defined as the required expense you obtain during the previously mentioned period of restoration that you would not have incurred had there not been a physical loss caused by a hazard to your place of business. However, you are obligated to make every effort to try to minimize these expenses.
There is optional additional coverage that your business income endorsement section of property policies can include. These coverages are called “extensions of coverage,” and with these coverages, your policy can protect against business income losses which occur as a result of an assortment of causes, including service interruption, contingent business interruption (CBI), leader property and interruption by civil or military authority.
As you can see, there are many factors that businesses should consider when purchasing business interruption coverage.
Janet Payne of TrustPoint Insurance advises, “A business owner should have this conversation with their agent. You need to ask yourself if my building burned down tonight would I still be able to sell my products or services tomorrow? An internet based business may not need loss of income if their main offices were gone, they could continue business as usual from any laptop or desktop computer anywhere. However, if your business is a retail store or warehouse that loses inventory or its storefront, a fire loss could be extremely impactful to the income stream.”