A fire, severe storm, or other unexpected event can do more than damage a business’s property. It can also prevent the company from operating normally, cutting off revenue while expenses continue to arrive.
For a small business, even a temporary shutdown can create significant financial pressure. Rent or lease payments may still be due, employees may need to be paid, and other ongoing expenses do not automatically disappear because the doors are temporarily closed.
A Business Owners Policy can combine several important protections in one package, including commercial property, general liability, and business income insurance. Business income coverage can become particularly important when a covered event interrupts normal operations.
What Is Business Income Insurance?
Business income insurance, also commonly called business interruption insurance, is designed to help replace income lost when a covered event forces a business to suspend or reduce operations.
When physical property damage from a covered event interrupts normal operations, business interruption coverage may help with lost income and certain continuing expenses while the business works toward reopening.
This distinction is important because repairing damaged property is only one part of recovering from a major loss. Keeping up with ongoing financial obligations while revenue is interrupted can be just as important to the business’s recovery.
Property Coverage and Business Income Coverage Have Different Jobs
Imagine a fire damages part of a retail store.
Commercial property insurance may help address covered physical damage to the building, equipment, furnishings, or inventory according to the policy. But what happens to the revenue the store would normally generate while repairs are taking place?
That’s where business income coverage may come into play.
Garrett Insurance’s Business Owners Policy coverage includes business income insurance as one of the coverages that can be incorporated into a customized BOP.
Together, property and business income coverage can address two different sides of the same covered loss: physical damage and the financial impact of interrupted operations.
What Expenses May Business Income Coverage Help With?
The exact protection depends on the individual policy, limits, exclusions, and circumstances surrounding a loss. However, business income coverage may help with expenses such as:
- Lost business income
- Rent or lease payments
- Employee payroll
- Certain taxes
- Loan payments
- Certain relocation or temporary operating expenses
These expenses can add up quickly, especially when repairs take weeks or months.
For example, a business may be unable to serve customers from its usual location but still have contractual and financial obligations. Appropriate business income coverage can provide valuable financial support during the recovery period.
Not Every Business Closure Is Covered
One of the most important things business owners should understand is that business income insurance does not mean every interruption will automatically result in a covered claim.
Coverage is generally tied to the terms of the policy and a covered cause of loss. Certain events may be excluded, while others may require separate insurance or endorsements.
Business owners should understand:
- Which causes of loss are covered
- How the policy defines a business interruption
- The applicable coverage limits
- Any waiting period
- How long benefits may be available
- Which expenses qualify
- What exclusions apply
Reading these details before a loss occurs can help prevent misunderstandings during an already difficult situation.
How Much Business Income Coverage Does Your Company Need?
The appropriate amount varies from one business to another.
Consider how much revenue the company normally generates and how long it could realistically take to restore operations after serious property damage.
A company that can temporarily operate remotely may recover differently from a retailer, manufacturer, or service business that depends heavily on a specific physical location.
Accurate financial records are also important. Historical revenue, operating expenses, payroll, and financial projections can all play a role in determining appropriate coverage and documenting a claim.
When Should You Review Your BOP?
Business income needs can change as your company grows.
It may be time to review your policy if you have:
- Increased revenue
- Hired additional employees
- Moved into a larger location
- Added equipment or inventory
- Expanded operating hours
- Opened another location
- Changed how your business delivers products or services
A policy designed several years ago may no longer reflect the financial impact your company would face if operations stopped today.
Reviewing your broader commercial insurance coverage periodically can help ensure that your protection keeps pace with the business.
Protect More Than Your Business Property
Replacing damaged property is important, but getting the business financially through the recovery period can be just as critical. Business income coverage can help eligible businesses manage certain lost income and continuing expenses following a covered interruption.
Take the Next Step Before an Interruption Happens
If your revenue, payroll, location, or operating expenses have changed, now is a good time to determine whether your existing business income limits still reflect your current operations.
Review your Business Owners Policy with Garrett Insurance. Our team can help you evaluate your current coverage, understand how business income protection fits into your BOP, and identify areas that may need to be updated before an unexpected shutdown occurs.