Business Income and Extra Expense Insurance

Business income is a type of property coverage.  It is most often found as additional coverage in a Business Owners Package Policy (BOP).

The concept behind business income insurance is that your business receives the money it would have received (usually net profit and payroll expenses) were it able to stay open.  Business income insurance pays out net income (profit) and the ongoing operation of the business.  This usually includes payroll as an operating expense.

There is some debate now about the applicability of business income insurance:

Read More on Business Income Insurance Claims Here

Business income insurance pays out in 2 scenarios

Generally speaking, business income pays out in the event there is a direct physical loss to the insured location in the declarations page of the policy.  This usually has to be a loss by a covered cause of loss.  This means that you have to have a loss at your insured location (a fire, for example) and fire is a cause of loss that would be covered by the policy.

Business income insurance may also apply when a civil authority issues an order limiting access to your property because of a condition present at another location.

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Is there a deductible to business income insurance?

Business income insurance may have a deductible in the form of a specific dollar amount, or it may pay out after a waiting period.  The waiting period most often seen in policies is 72 hours from the time of loss.  Those three days of expenses are your “deductible”.  Business income insurance continues until the business has been restored.  Back to our fire example, the business would receive business income only after 72 hours, and only until the building has be repaired from the fire to the point business activities can resume at the location.

Why would a business need business income and extra expense insurance?

This coverage keeps you open and your employees paid during the restoration period after a loss.  This restoration period could be lengthy (imagine the time necessary to rebuild after a fire) especially if your business can only be run at a particular location.

Business income vs. Extra Expense

These are two separate coverages.  Often they come together in a package policy, but they can be purchased separately.  While business income covers the normal operating cost of running the business and the net profit from the business, extra expense pay the additional costs incurred by a business after a loss.  These are the costs that are in addition to normal operating costs while the insured property is being repaired.