Many business owners today are well educated in regards to insuring their buildings, business personal property, and autos for property and liability, and their employees for workers compensation and group health. But some business owners fail to recognize the need for Business Income insurance. A serious loss such as a fire may put you out of business for two or three months or even much longer. The business would be paid for the property losses to their building and business personal property, but what about the time period during which the business is not in operation? The shut down may be complete, or part of the business operation may shut down until the building and business property is repaired or replaced. This may take several months before full operations are resumed. While waiting to resume full operations, sales and production drop, but your creditors and vendors still want their payments on time. Good employees may seek employment elsewhere. Temporary space and equipment may have to be leased to fill your orders and keep your good customers from looking elsewhere for service. Once you do get back into business, it often takes many months to get your revenues back to pre-disaster levels. All of these areas represent significant exposures to your business well being. Even if you have proper insurance on your buildings and personal property, you still will likely fail in your efforts to reopen your business after a major fire unless you also have Business Income coverage.
Business Income and Extra Expense can fill the void. This coverage will pay for those expenses that continue even after your business is temporarily shut down by a covered loss. It can be written to cover your payroll expenses, which will help retain your employees, or pay the extra expense to remain in business by subcontracting out your work until your business is up and running again. Lost profits are also covered under this coverage. With various endorsements, the Business Income coverage can be expanded to cover losses resulting from loss of power or utilities. It can be extended to cover losses of revenue after you are back in business, because a business that has been shut down for a while will not usually be back up to full speed immediately upon re-opening.
Most insurance companies include this coverage under their Business Owners Policy (BOP) form, with no dollar limit for up to 12 months. The coverage can be added by endorsement any commercial insurance package. Normally there is a 72-hour waiting period on Business Income, which means for the first 72 hour after a loss there is no coverage.
Any way you look at it, this is a very difficult type of loss to adjust. The insurance carrier will look at past records, invoices, profit statements and other various documents that will help to determine what the actual Business Income loss would be for the period that an insured is out of business.
Not only is this type of loss difficult to adjust, buying a proper amount of coverage is difficult to do also. When determining how much loss of income coverage to purchase, one needs to consider the following factors:
- How soon can you get your business back up and running?
- Would you be out of business if your location was destroyed, or could you operate out of temporary quarters?
- Would you want to keep your employees on the payroll, or would you want to risk them looking elsewhere for employment?
- How much profit do you stand to lose during this period?
- What expenses do you have which will continue, even if you are out of business temporarily?
There are formulas and work sheets that the we use to help determine proper limits of coverage.
If a business does not resume operations after a Business Income loss, or does not resume operations as quickly as possible, the insurance carrier will pay a loss based on the length of time it would have reasonably taken to resume operations.
As a business owner you work hard to make your business successful. Don't forget Business Income when its time to consider which insurance coverage to purchase. Contact us for more information.