Most people would never consider opening a business without first purchasing property insurance to cover the cost to repair or replace a building or equipment that’s been damaged due to a covered peril. But too many business owners fail to think about how they would keep their business afloat if they were forced to temporarily close. Business income (interruption) coverage also known as business income coverage (BI), can help with operating expenses during the period of restoration, and includes:
- Lost net income (based on financial records)
- Mortgage, rent and lease payments
- Loan payments
- Employee payroll
Business owners should make sure the policy limits are sufficient to cover their company for more than a few days. After a major disaster, it can take more time than many people realize to get “back in business.” Business income coverage likely has a "restoration period.” This is the length of time that a policy will help pay for lost income and extra expenses while the business is being restored. Typically, there’s a 48 to 72-hour waiting period before the period of restoration kicks in. The standard property policy limits the business income restoration period to 30 days, but this period can be extended to 360 days by endorsement.
A business owner’s policy (BOP) often combines property, liability and business income (interruption) coverages for small–to-midsize businesses. Coverage purchased as a package is generally less expensive than if purchased through separate insurance policies and can help ensure proper underlying limits are in place. Normally, companies with 100 employees or fewer and revenues of up to about $5 million or less are candidates for a BOP. Some types of businesses, such as restaurants, may be ineligible for a BOP because of the specific risks inherent in the business and may need to consider buying the individual coverages separately. An endorsement or rider can be added to a commercial property insurance policy that will extend the policy's coverage to business income (interruption) losses.
Business income (interruption) insurance does not cover:
- Broken items resulting from a covered event or loss (such as glass)
- Flood or earthquake damage, which are covered by a separate policy
- Undocumented income that’s not listed on your business’ financial records
- Pandemics, viruses, or communicable diseases (such as COVID-19)
How much business income (interruption) insurance coverage is needed?
A good rule of thumb is to use a business’s gross earnings and projections to estimate future profits and determine the right amount of coverage. Remember, if business income (interruption) costs exceed the coverage limit chosen, the business owner will have to pay out of pocket for any extra expenses.
How much does business income (interruption) insurance cost?
It depends on a number of factors, including your:
- Number of employees
- Amount of coverage
- Prior claims experience (if you’ve had to file any claims with your insurer)
The price of the policy can also vary depending on your location. For example, if the business is in an area with a higher risk of hurricanes, the cost of business income (interruption) insurance may increase. A restaurant might have higher premiums than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location.