As business owners, when we consider our commercial insurance needs, we tend to focus on liability concerns and the physical “things” that keep business moving.
For example
- Building or Office Space
- Tools and Equipment
- Inventory and Product
- Office contents (furniture, computers, copier, etc.)
But the most valuable thing your business possesses isn’t a thing at all, but rather its ability to generate revenue and ultimately your income.
And that’s exactly what Business Income Coverage (also called Business Interruption) protects and why it needs to be considered when shopping or renewing your business insurance policy(s).
What happens if your business simply cant operate after a loss?
Imagine this:
- A fire damages your building, or possibly an adjacent structure, prompting closure by local authorities or it’s simply too damaged to operate.
- A pipe bursts and floods your restaurant, resulting in its closure until repairs can be made.
- Windstorm damage makes your location unsafe, or you lose utilities for an extended period of time.
- Vandalism or vehicle impact shuts you down.
In these not too uncommon examples, it’s likely your commercial property insurance policy will cover the costs to repair the building, replace inventory, and repair or replace equipment.
The problem is, most repairs after a serious loss take far longer than people expect, often weeks or even months, and in the meantime, your ability to generate revenue has been put on pause, but many of your expenses are still there.
According to Business News Daily, most small businesses would be unable to survive without any revenue for likely no longer than a month…
Not to mention, what do you do if your customers start going somewhere else?!
This is where businesses can get into serious trouble during a claims event. Not because the damage wasn’t covered — but because the loss of income wasn’t.
The good news is that this coverage is available as an endorsement to most commercial policies, or can be purchased as a stand-alone product, but it’s important to have the conversation with your agent.
Business Income Coverage is designed to put your business in the same financial position it would have been in if the loss never happened. In other words, to insure your cash flow until operations are back up and running.
Business Income Typically covers the cost of:
- Replacing lost net income (Net, not Revenue!)
- Continuing operating expenses (utilities, taxes, insurance, subscriptions, etc.)
- Payroll
- Rent or mortgage
- Loan payments
Which businesses should pay attention to their business income coverage?
In general, if your business relies on a physical location to operate, or requires critical equipment to function, reviewing this coverage with your agent is a conversation worth having. Restaurants, retailers, manufacturers, or medical service providers are just a few examples. Even a home-based business can benefit from this coverage.
Additionally, coverage can be purchased for “Extra Expenses” associated to replacing lost revenue as quickly as possible. There is an important distinction between the two coverages.
Here’s an example of Extra Expense coverage at work.
A Spokane landscaper’s shop suffers a fire, damaging or destroying critical tools and equipment, along with the building storing them. The tools and equipment are covered under property insurance, along with the building. However, repairs to the building are expected to take 3-4 months, and replacing specialty equipment requires ordering from specialty suppliers with at least 3-4 week lead times.
Insurance will pay for the building repairs and new equipment, along with the business income replacement, but what happens when the business’s customers look to competitors for service in the meantime?
They may never come back, and that is why Extra Expense is important to carry alongside Business Income coverage. It provides coverage for those incidental expenses that help maintain continuity in operations.
Extra Expense coverage can step in to cover the cost of leasing a temporary space, renting equipment or vehicles necessary to complete jobs until replacements arrive, and ultimately keeping business operations alive, rather than just replacing income.
Whats it cost?
For most small and mid-sized businesses, Business Income Coverage adds very little premium compared to the protection it provides, and can also be endorsed to products such as Cyber Insurance, which is particularly useful for businesses that conduct business virtually or over the phone.
Business insurance in general, is a fairly dense topic, and each business is unique. Your best bet is to simply have a conversation with your agent. We hope this helps you learn a little more about what questions to ask!
Feel free to reach out to us with any questions at service@lilacinsure.com
👉 Request a review here: https://www.lilacinsure.com/contact/
📞 Or call us at 509-747-2531
Lilac Insurance Group, LLC | Serving clients in Washington, Idaho, Oregon, Montana, and Arizona.
