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Breaking Down Business Income Coverage

While COVID-19 continues to impact our economy, business income coverage, sometimes referred to as business interruption coverage, has become a widely popular topic in the insurance industry. As many business owners struggle to keep their businesses afloat, several questions have emerged on how insurance policies may respond to a loss of business income.

For many, this may be the first time they have heard the term, “business income.” For others, they have one question, “Does my policy provide business income coverage during a COVID-19 shutdown?”

In a standard ISO policy, the Business Income form states the following:

                “Business Income means the:

a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and 
b. Continuing normal operating expenses incurred, including payroll.

Coverage Determination

In a standard ISO policy, Business income coverage is triggered in the following way:

“We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’ The ‘suspension’ must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.”

Determining Your Need for Business Income Coverage

As a business owner, it is highly recommended that you carry business income coverage. A few examples of losses that would be covered by business income coverage, and certain business income enhancements include:

  1. Fire causes extensive damage to the building in which you operate, and it takes several months to rebuild and resume operations.
  2. Lightning strikes a power line causing electrical damage and without electricity you are unable to open your business.
  3. A nursing home is severely damaged by a tornado requiring residents to be evacuated and relocated to another facility for an extended period of time. Business Income provides loss of income to the facility until the census is built back up to capacity during this time. 

In all of these scenarios, business income coverage would typically protect during a business shut down against certain financial losses such as a loss of profits, payroll expenses accrued, and continued operating expenses such as mortgage payments, rent, or insurance costs.

It is important to know that business income is not a standalone insurance policy that you need to purchase. It is an additional coverage that should be purchased through your existing Property policy. Business Income coverage can be endorsed to your existing policy at any time, and as long as coverage is in place prior to a loss, it can help cover costs that are accrued while your business is unexpectedly shut down. To learn more about coverages that will help protect your community, contact our team of senior living professionals.