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 replace the 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 costs associated 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 have the 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 is essential.