Business income coverage, also known as business interruption insurance, is designed to assist businesses in compensating for income lost due to a covered event, such as property damage.
Should your business face a situation where property damage prevents you from operating, this coverage supports the recovery of lost revenue during the restoration period, allowing you to resume operations.
Typically, business interruption coverage is incorporated into a business owner’s policy or a general liability package through an endorsement rather than being acquired as an independent policy.
What Is Covered
Should a covered loss lead to the temporary closure of your business, business interruption insurance can assist in covering your operational expenses, which include, but are not limited to:
- Payroll expenses
- Mortgage or lease payments
- Loan obligations
- Tax liabilities
- Costs associated with relocating to a temporary site
- Lost income
How Business Interruption Coverage Is Calculated
For the convenience of policyholders, the majority of business owner policies provide coverage based on a specific duration, rather than setting dollar amount limits. Commonly, business interruption insurance is available for periods of 6, 12, or 18 months.
In the event of a claim, insurers determine the compensation for lost income using your business’s historical financial performance. They will assess the revenue from a comparable period in the past to form the basis of their payment calculation.
It’s important to note that any income not officially recorded in your business financial statements will not be considered in the compensation.
Understanding The Policy Exclusions
All insurance policies come with exclusions, and it’s critical to familiarize yourself with what is and isn’t covered under your plan.
Business interruption insurance typically activates in response to direct physical damage to insured property, such as buildings or business assets, that halts business operations.
However, if a specific cause of loss is not covered under your business owner’s policy, then business interruption coverage will not be applicable.
For instance, most standard business owner’s policies exclude coverage for viruses and bacteria.
Similarly, damage from floods is not covered under a typical business owner’s policy. Flood damage requires a separate insurance policy, meaning business interruption coverage would not apply in such instances from your business owner’s policy.
Moving Forward
Navigating the complexities of running a business is challenging, especially when it comes to understanding the necessary insurance and the specifics of your coverage to ensure your business continues to thrive.
Partnering with a reputable independent insurance broker can be invaluable in safeguarding your business.
Should you find yourself without a trusted local independent insurance broker, or if you’re interested in a comprehensive review of your existing insurance policies, don’t hesitate to contact our team.
Reach out to us at 617-298-0655 for expert assistance and guidance.
