In the event of a natural disaster such as a fire, earthquake, tornado or other
unforeseen event, your business may not only incur damages to your building and
inventory, but also repercussions to its income stream. Such events cannot be avoided,
but what you can do is to protect your company from potential financial loss —
as a result of being out of commission and unable to work for a certain period of
time. While you may have an existing insurance policy which will which cover physical
structure damages, but when the building is being repaired, your company also needs
a way to recover some its loss of income. This is where business income and extra
expense coverage comes in.
What is Business Income and Extra Expense Coverage?
Also referred to as business interruption insurance, business income and extra expense
coverage provides your business with financial protection when an insured loss prevents
you from commencing business as usual. This is most commonly due to a natural disaster
like an earthquake or fire where your building is completely ruined, in which your
business facility or equipment are being repaired or rebuilt from damage. After
such event, you may have had proper insurance which covers the cost of repairs or
replacement to your building or equipment, but you will most likely be unable to
conduct business during the course of repairs. By having business income coverage
or extra expensive coverage, your business is protected with coverage that will
replace your typical business income stream.
Who should have Business Income Coverage?
Business income coverage is an essential insurance policy to obtain for any type
of business that operates out of a physical location, primarily with equipment or
tools that are required to conduct business on a daily basis. Manufacturing, retail
and wholesale businesses are some examples of the types of businesses which would
benefit from business income and extra expense coverage. These types of businesses
would suffer greatly if their equipment, tools, or building were under repair and
were therefore not able to do business as usual for a certain period of time.
Types of Business Income Insurance
There are three main types of business income insurance that can benefit the company
and ease the potential financial burden; Business Income Coverage (BI), Extra Expense
Coverage, and Ordinary Payroll.
- Business Income Coverage (BI) – Business Income Coverage which will replacethe profits made by the business while their building is shut down from property
loss, also called the lost gross earnings.
- Extra Expense Coverage– This type of business income insurance covers costsassociated with your business moving to a different location in order to continue
its ordinary business routine. This portion of the insurance policy will cover additional
expenses from relocating such as leasing new equipment, restoring databases, or
the move to the new location.
- Ordinary Payroll – With ordinary payroll coverage, your business will havethe opportunity to continue to pay their employees even when there is no work for
them to perform while the business or equipment is being remodeled or repaired.
The last thing you want is to have your trained employees seek employment at another
company while your building or equipment are being repaired.
Business income and extra expensive coverage safeguards a company’s income stream
when it is unable to conduct business or pay its employees when its building or
equipment is out of commission as a result of a covered loss. It also helps with
relocating fees. In order to protect your business from certain financial burdens
as a result of natural disasters or other insured events, business income insurance