If you are a business owner, you have the added heavy responsibility of preparing for the worst possible outcomes to protect yourself, the business, and your employees financially.

Finding the right business income insurance coverage can often be overwhelming, frustrating, and hard to understand, especially with misleading brokers just trying to make a sale from you, which can lead to painfully expensive mistakes.

Here’s a simple guideline on what you need to know as you look for the perfect umbrella for a potential business rainy day.

What is Business Income Insurance?

The definition of business income insurance is financial assistance in the event of business interruption when an event causes your business to shut down temporarily and lose income. Business income interruption can be caused by issues like fire, theft, or physical damage to property.

These are all examples of business income loss you cannot prevent or predict, but they are issues you can prepare for by committing to business coverage.

Important Terms to Know

The following are terms you need to understand when considering business income insurance:

• Period of Restoration – the waiting period when you are repairing your business.
• Actual Loss – the payment received from insurance that covers the actual loss of income.
• Civil Authority Interruptions – the instance where a business must shut down due to the instruction of civil authority.
• Service Interruptions – operations costs prevalent throughout the loss of income

By understanding these terms, you will be able to comprehend the important factors at hand when starting the process of selecting the right type of business insurance.

While property insurance covers physical damage of the business premises, business income coverage pays for lost revenue in the case of a company’s physical property being damaged. This income may apply in the temporary shutdown of a company that directly affects the income-generating of a company.

Coverage includes the loss of income and may exclude operating utilities. The coverage applies during the period of restoration and depending on your coverage, may extend to cover a specified number of days until after the completion of repairs.

 

What Does Business Income Insurance Cover?

While property insurance covers physical damage of the business premises, business income coverage pays for lost revenue in the case of a company’s physical property being damaged. This income may apply in the temporary shutdown of a company that directly affects the income-generating of a company.

Coverage includes the loss of income and may exclude operating utilities. The coverage applies during the period of restoration and, depending on your coverage, may extend to cover a specified number of days until after the completion of repairs.

Loss of income is a huge threat to any successful business. Take a moment to picture the following possible scenario: A sudden fire damages your equipment and business premises, causing your business to shut down operations until equipment or premises has been repaired or replaced. Income will be lost in the midst of having to still pay for repairs, replacements, operation costs, salaries, etc.

In the event of business income interruption, business income insurance may cover the following costs:

• Bond repayments or rent
• Employee wages
• The business loan payments
• Tax payments
• The loss of income during the period of restoration

Insurance might not pay for:

• Undocumented income
• Damage not stipulated in the policy
• Only partial closing down of operations
• Acts of war or civil unrest
• Extreme weather events such as earthquakes or flooding (may be covered by a separate policy).

How to Calculate Business Income Insurance

The premium amount and the payment amount from insurance coverage is dependent on many factors. Two such factors are the business’ monthly income and expense records. Coverage is also dictated by the terms of your policy, so some of the above might not be included in the payout if not stipulated in your policy.

Your business industry and location are also important factors that affect the cost of your premium. An example is how businesses in locations with a high crime rate or those working with highly flammable equipment will likely pay higher premiums than their counterparts. It is important to constantly try to decrease your claim risk to avoid inflated premiums.

Insurers should help you determine premiums, what policy to take, and how to decrease risk. This process needs sufficient information on the finances of the business and projected costs.

This is why it is extremely important to safely keep financial records. These should constantly be up to date and digitised if possible, as they help determine how to calculate business income insurance. You don’t want to pay too much or too little on premiums. Otherwise, you may have to pay for certain costs out of your own pockets.

Factors in Choosing Insurance

Consider the following important factors in 6 steps when choosing business income insurance:

1. What business income interruptions policies offer and what they do not cover
2. What costs your business, in particular, would need to cover in the case of income interruption
3. The duration of the period of restoration and if the policy covers fees associated with a second operation location
4. Updated financial records of the business to select a coverage that reflects your income projection
5. If premiums are affordable for your business and match the projected payout
6. Loss of income claims process

Period of Restoration Insurance

There are special considerations for loss of business income. In the case your business has to operate in a second location, your cover may pay those operating costs while repairs occur in the period of restoration.

Loss of income claims may also be payouts for a certain period after restoration until the business resumes to full capacity in terms of revenue generation. All of this must be stipulated in the policy, so be sure to select the relevant coverage if needed.

Final Considerations for Ensuring The Best Cover

You can use this guideline as you compare business income insurance quotes. Be sure to select sufficient coverage with an insurer you can trust to secure peace of mind.

Insurance gives business owners room to focus only on the growth of their investment and is essential to securing the future of the business.

Insurance is a sound safety net for the investment that is your business. This process requires the utmost care, consideration and research to ensure the maximum protection of your business and future