If you own, operate, or manage a business, you know how important it is to track revenue and financials. But what if that revenue stopped coming in due to a fire? What if a major theft prevented you from being able to pay your bills and payroll? Having business income (also known as business interruption) coverage in place may help lift the financial burden. But it’s very important to understand when and how it can be used.
Business Income Coverage Examples
Let’s take for example, Christina owns an independent bookstore and also owns the building where the store is located. A fire damages part of the store, and in the process of putting out the fire, her inventory is destroyed by smoke and water damage. It’s going to be several months before the property can be cleaned and repaired for patrons to safely enter, and new inventory must also be ordered and stocked.
The property policy on the business covers much of the physical damage, and there is also some coverage for inventory. However, Christina knows she’ll have trouble paying her employees and her bills without any revenue being generated. So, what does she need to know if she has business income coverage in place?
- What is the actual loss sustained? Christina will need to know the total of her covered losses and how much was covered by other insurance policies.
- What is the amount of income lost? Christina will need to be able to provide information on the amount of revenue she would have generated had the store been open as normal.
- What is the “waiting period” of the policy? Most business income coverage will have an amount of time that must pass before the coverage can take effect.
- What is the “period of restoration”? How much time will the policy cover while the business is closed?
These crucial factors will help determine when, how much, and for how long Christina can expect the policy will pay.
Named Perils
These policies typically have named perils as well. So, while a fire, theft, wind, etc. may be covered, you’d have to check your policy to see if a service line being damaged would be covered. In addition, civil authority may be covered as an interruption after a natural disaster. As an example, if a sinkhole damaged the only road leading to your business and the government ordered closure as a result, you might be covered for business income.
Understand Your Business Income Coverage
However, and as with any policies, it is extremely important to understand your coverage and limits. Don’t assume you’d be covered for certain situations, talk with your agent and get an understanding of what would trigger this coverage, for how much, and for how long.
To learn more about it, contact Brandon from our team at brandon@ownbyinsurance.com or 865-453-1414 today.