Business Income and Extra Expense insurance coverage, also known as Business Interruption insurance, is a type of coverage that provides protection for a business in the event that it is unable to operate due to a covered loss. This coverage is designed to help the business continue to cover payroll, pay bills and extra expenses incurred as a result of the loss. This coverage is typically found on a commercial property policy.
For example, if a business experiences a fire or other covered peril that damages its building or property, it may be unable to operate for an extended period of time. During this time, the business may lose income and incur additional expenses, such as temporary relocation costs, to maintain its operations. Business Income and Extra Expense insurance can help to cover these losses, allowing the business to continue operating and generating income.
It is important to understand that a business could also suffer a Business Income claim from a cyber related claim. These claims are not picked up on a property policy so it is important to check your Cyber policy and the coverages available to you there. Learn more about the ins and outs of a cyber policy here.
The coverage provided by a Business Income and Extra Expense policy typically includes:
- Business Income Loss: Coverage for the loss of income that the business would have earned if the covered loss had not occurred.
- Extra Expense Coverage: Coverage for the additional expenses that the business incurs as a result of the covered loss, such as temporary relocation costs, expedited shipping, or temporary equipment rental.
- Dependent Property Coverage: Coverage for losses incurred by the business as a result of damage to property belonging to others that is used in the business operations, such as a supplier's warehouse.
The specific coverage provided by a Business Income and Extra Expense policy will depend on the terms and conditions of the policy, as well as the specific needs of the business.
Actual Loss Sustain vs. Monthly Limitation vs. Co-Insurance
Business Income and Extra Expense coverage can be programed in three different ways:
- Actual Loss Sustained: Actual Loss Sustained is a term used to describe the actual financial loss suffered by a business as a result of a covered peril. This loss can include lost income, extra expenses incurred as a result of the loss, and other costs associated with the business interruption.
- Monthly Limitation of Indemnity: The Monthly Limitation of Indemnity is a term used in Business Interruption insurance policies that sets a maximum amount of coverage that will be paid out to the policyholder each month in the event of a covered loss. This monthly limit helps to control the cost of the policy and ensure that the policyholder is only paying for the coverage they need.
- Co-Insurance:
Co-Insurance is a type of policy provision that requires the policyholder to maintain a certain level of insurance coverage on their BI/EE limit in order to receive the full benefits of the policy. If the policyholder does not maintain the required level of coverage, they may be subject to a co-insurance penalty, which reduces the amount of coverage available under the policy.
Ideally an organization will have Actual Loss Sustained, but costs or underwriting may limit options available.
Tips for Securing Business Interruption Insurance
Businesses should consider these best practices for purchasing and maintaining adequate business interruption insurance:
- Perform a risk assessment.
- Businesses exposures vary based on industry, location, and operations. Organizations should review their risks and analyze the potential impacts of a potential closure to help determine the right coverage levels and policy features.
- Consult the experts.
- Work with trusted insurance professionals, like the TROXELL team, to better understand offerings and uncover any coverage gaps your business may have.
- Conduct policy reviews.
- Your exposures change and evolve over time, so it’s important to review your coverages to make sure they stay up to date with your ever evolving business. Minimize your out-of-pocket costs by carefully reviewing your policy with your trusted insurance professional.
- Maintain proper documentation.
- Having proper documentation and records will help you have a smooth claims process and receive timely payouts, allowing for continued financial stability.
To ensure ample coverage, businesses should work with trusted insurance professionals to calculate proper business income exposure. Work with a licensed agent at TROXELL to get started protecting your business and the future of your business, visit here to start a business quote request.
This blog post was written by:
Ryan Augustine