Business Income Insurance – Possibly the Most Important Coverage you will Buy!

By March 14, 2019 Business Insurance

Author: Trent Hess, Business Insurance Professional

For many businesses, the most important insurance they may buy is Business Income insurance. You may know this as Business Interruption insurance. These are interchangeable terms.

Why is this coverage so important?

Imagine you have a retail business with only one location. If your building burns down you are very likely looking at a rebuilding timeframe of at least 12 months, possibly more. Most businesses would not be able to survive 12 months of lost income, while still shouldering all of their ongoing expenses. If your business can’t survive what’s the point of having Building coverage to rebuild your building?

Any business that is reliant on their physical building, equipment or inventory to generate revenue needs Business Income coverage. At its most basic, the coverage provides for three things:

  1. Replacing lost income: The policy provides coverage for income your business would have earned during a closure period if it had been operating normally
  2. Continuing Expenses: The policy will cover continuing expenses that your business is still obligated to pay even though you are not operational. This can include many expenses, but primarily we are concerned with:
    Rent or Lease payments – Even if your premises are unusable following a disaster, many leases still require that you make payments.
    Loan Payments – If you have outstanding loans, you will need to continue to make payments even if your business isn’t operational.
    Payroll – Most businesses (especially in a tight labor market) simply can’t afford to let their whole staff go find other jobs while the business is down. Rehiring and retraining new staff is costly and impractical.
  3. Extra Expense (Relocation) – The policy (if endorsed properly) will pay for Extra Expense you incur in order to minimize your Business Income loss. Most often, this mean relocation. Maybe you can temporarily rent a different building and start partial operations in order to generate some revenue? The policy will cover this. This could also include costs to expedite the arrival of new equipment, inventory, etc.

Industries in which Business Income coverage is generally considered to be critical are:

  • Retail
  • Manufacturing
  • Medical Offices
  • Businesses with specialized machinery

For service-based businesses, construction companies, professional offices, or warehousing the need is not as critical, but the risk should still be given careful consideration.

Finally, keep in mind that Business Income coverage is one of the most complex coverages you will encounter on your Commercial Insurance policy. It is important that you have thoroughly discussed this coverage with your broker and understand if the limit you have chosen is appropriate, that the coverage is structured to avoid co-insurance penalties, and that you have considered all of the optional endorsements that can be added to the coverage.