Business income coverage, also known as business interruption coverage or additional expense coverage, is a type of insurance that can provide protection against certain financial losses that are suffered when a business is unable to operate. This type of coverage can cover lost revenue due to physical damage to property caused by fires, windstorms, acts of vandalism, and other similar events. It can also cover additional expenses that are reasonably and necessary incurred to avoid or minimize the period in which the company cannot operate. The period of time during which these coverages apply is referred to as the restoration period. This period begins when covered damage forces a company to suspend operations and ends when the covered damage has been repaired or could have been reasonably repaired.
Some policies also include coverage for expanded business revenues, which can provide protection against a loss of business revenue that continues after operations have resumed and the restoration period has ended. For example, let's say Kate's Bagel Shop is a Travelers customer. The store's insurance policy provides coverage for property and business income (including additional expenses and up to 30 days of expanded business income coverage). A fire causes extensive damage to the interior of the store and to the kitchen equipment. It will take approximately three months to repair the damage caused by the fire.
The store can reduce its downtime and resume operations in two months, instead of the expected three months, by organizing the preparation of bagels off the premises. However, when it resumes operations, the store's revenues do not immediately return to the level projected before the fire. Under most policies, business income coverage is subject to a waiting period (for example, the first twenty-four hours after the damage caused by the suspension) or to a monetary deductible. Under most policies, a tornado is a covered cause of loss and, consequently, when damage caused by a tornado causes operations to be suspended, commercial income coverage can be activated. Coverage generally begins at the time of the damage caused by the tornado (unless there is a waiting period specified in the policy) and generally lasts until the “restoration period”.The restoration period would generally be the period of time reasonably required to repair, rebuild, or replace property damaged by the tornado with property of similar quality.
If you chose not to repair, rebuild, or replace property damaged by the tornado, the restoration period would generally be the time reasonably needed to move your business to a new location. Your traveler claims professional will work with you to determine the specific restoration period for your loss. Under most policies, business income coverage includes both net income (net profit or loss) that would have accrued and normal, ongoing operating expenses. We and our contracted accounting experts will work closely with you and your representatives to determine if you have experienced an actual loss of business income. In many (but not all) policies, business income coverage includes normal ongoing operating expenses such as payroll expenses. Check with your travel claims professional to see if your policy offers this coverage.
Business income coverage only applies during the reinstatement period; if you have resumed operations, the reinstatement period has ended. However, if your policy includes expanded business income coverage, there may be coverage for a continued loss of business income after the end of the reinstatement period. Your traveler claims professional will be happy to review all coverages offered by your policy. The coverages included generally appear on the policy statements page. Business income insurance covers loss of income resulting from damage to physical property.
According to IRMI (Insurance Risk Management Institute), coverage can be applied for as long as necessary to repair or replace damaged property but some policies may extend coverage for a specified number of days after repairs have been completed. For example, if a fire leaves a retail store unusable and it cannot sell merchandise or generate revenue during its closure for repairs, business interruption coverage could help offset lost revenues along with daily expenses that are still needed (such as payroll and taxes). Nor would it cover losses if your company continued operating during a pandemic or weather event or closed due to personnel problems resulting from such incidents. You can take out additional expense insurance as an extra layer of protection against financial losses due to unexpected events that cause your business operations to be suspended or interrupted. This type of insurance can help cover lost revenue due to physical damage caused by fires, windstorms, acts of vandalism and other similar events. It can also provide protection against additional expenses incurred in order to minimize downtime while repairs are being made. If an area has an increased risk of suffering certain covered risks such as tornadoes or fires, then it is likely that businesses in that area will pay more for their business interruption insurance premiums.
Homeowners can also purchase this type of insurance in order to protect themselves from losses due to unexpected events that cause their businesses operations to be suspended or interrupted.
