Loss of Income Due to a Covered Claim.
From Hinkle Insurance.
Your business is closed due to a covered claim. You have insurance on your building and contents but what do you do for income while your business is closed? Is this something that is covered by insurance? The answer is… it depends. There is a coverage called “Loss of Income or Business Interruption Insurance”, but not all policies have this coverage automatically. A standard “Business Owner’s” policy generally has this coverage built in but many “Commercial Package” policies do not and the “Loss of Income” coverage must be added by endorsement.
“Loss of Income” coverage is designed to replace the lost income that is suffered following a “covered” loss to your business. For example, if you suffer a fire, and as a result you are unable to operate your business for a period of 6 months while repairs are being made. Your “Loss of Income” coverage will be there to help you pay your continuing expenses. Continuing expenses can include lease or mortgagepayments, utilities, taxes, loan payments and payroll so you can keep employees on staff during the interruption. The amount you are paid is based on your business records regarding income and expenses. Always be sure to have these records stored safely either digitally or off-site. Keep in mind, the coverage will not respond unless your building or property suffered a covered cause of loss – so if there is a flood, you will not be covered as flood is not a covered peril on a business property policy.
Even if you were to have flood insurance, it would depend upon what company you insure with. If you have a policy through the National Flood Insurance Program, loss of income coverage is not available. If you insure with a private carrier, this coverage can be purchased.
The standard “Loss of Income” coverage may not always be enough. Let’s change the example a little bit. Assume that a hurricane caused no damage to your business but caused damage at a power generating station 10 miles away. As a result, you have no electricity for a period of 10 days. This is bad news. Your policy will not provide any lost income coverage because your business had no direct damage. The power loss was due to damage that was off your premises. Fortunately, you can add coverage for off premises utility interruption. The name of the coverage is “Business Income – Off Premises Utility Services Failure” and can include coverage for interruption to water, sewer, gas, power and overhead power transmission lines. With this coverage you would then be paid for “Loss of Income” as stated above.
In some cases, you may not only need the “Loss of Income” coverage, you may need “Extra Expense” coverage as well. “Extra Expense” provides coverage to cover the extra expenses sustained by you to either avoid or minimize the interruption of business and to continue your operations. This could include renting a temporary location or the additional costs associated with expediting the purchase of new equipment.
Continuing your business operations is critical. Having a continuous cash flow is key, particularly for small or medium sized businesses that may not be able to sustain such a loss. A good business policy providing property coverage and including “Loss of Income” and “Extra Expense” can keep the business going and help it recover more quickly, while paying for repairs to the property as well.
Be proactive and review your business policy with a licensed insurance agent to be sure you have the coverage you need WHEN you need it, not after a loss.