Business income insurance or interruption insurance covers lost income if covered peril forces you to shut down your business temporarily. If you're forced to shut down for an extended period, business income insurance can also provide you with the financial resources you need to cover rent, pay employees, and pay other operating costs. Here's a detailed primer on business income insurance.
Business income coverage typically covers business income as well as extra expense loss. Business income is your company's net income plus continuing operating costs. Extra expense refers to the extra costs you'll have to incur to minimize or avoid the time frame your business will be out of operation. The period in which business income insurance will apply is called the period of restoration. The restoration period starts when you're forced to suspend your operations and ends at the time the covered damage has been repaired or could have reasonably been resolved.
Some policies offer extended business income coverage. This coverage covers the income loss that persists even after the restoration period has ended and you've resumed normal operations. The policy specifies the period during which extended business income coverage applies. For example, suppose you run a bagel shop, a fire damages your cooking equipment and the shop's interior, and you're forced to close the shop for about three months. You can shorten downtime and start operating in two months instead of three by making your bagels off-site. Unfortunately, your shop doesn't generate as much income after you resume operations as it did before the fire.
Here is how business income insurance will help you navigate this situation.
Your commercial property coverage will cover the expenses of repairing the damage.
Your business income insurance will help cover the financial losses resulting from the interruptions to your business. This may include the profits you could have made in the two-month period you were out of operation and the operating cost, like electrical costs, you incurred during that period.
Your extra expense coverage will help cover the cost you incurred to decrease downtime by making bagels off-site.
Your extended business income coverage will help pay for the loss of income that persists in the 30 days after you reopen your shop.
Business income insurance is often a component of the Business Owner's Policy, along with commercial liability and commercial property insurance. Buying this bundled commercial insurance policy is usually more cost-effective than buying standalone commercial policies. You can also include business interruption insurance as a rider in your commercial property insurance to cover loss of income resulting from damage to your property.
If your business has a physical location and if you provide services and products, or if you own property that helps generate income, you should consider getting business interruption insurance. For instance, if you own a car rental agency, restaurant, or barbershop, you can lose income if your property is damaged. In this case, business income insurance will help you stay in business after the damage by covering your lost net income, loan payments, mortgage or lease payments, employee payroll, and taxes.
Business income insurance can help you overcome the disruptions to your business and the resulting financial losses. At Reata Insurance Group, we will help you get the right commercial insurance in Texas that adequately protects your business. Call us today to learn more.