Why Business Income Insurance Is Crucial

by GuestPoster on July 15, 2010

Every business is concerned about protecting its assets.  Commercial insurance is one of the many vehicles used by a business to do that.  Preservation of property and protection from lawsuits are just a few of the ways business insurance can protect itself.  Another asset that a business must protect is its revenue.  If a property loss were to force a business to close for some period of time, most businesses would suffer from a loss of income.  Business Income insurance, also called Business Interruption insurance, is a form of insurance designed to reimburse a business such a loss of revenue.

What Does Business Interruption Insurance pay for?

Lost income, continuing ordinary expenses, ordinary payroll and extra expenses are some of the items that a business can collect from the insurance company under the Business Income insurance policy.  There are limits to the amount of time a business can collect under the policy; the standard policy offers up to 12 months of coverage.  This limit can be extended for an additional premium.

How Can A Business Get Business Income Insurance

Business Interruption is one coverage part that is offered in conjunction with a Commercial Property insurance policy.  For small business insurance policies, the coverage is often included automatically for a small premium.  For medium to large scale businesses, a business income application must be completed. The forms can seem daunting, at first.  Having the business’ financial statements and payroll records at hand will make completing the application much easier.

How to Choose a Limit for Business Income

Choosing a limit for business income insurance is likely to be the most difficult part of the process.  Consider the possible losses the business might suffer and how long it might take to resume operations.  If a fire were to destroy the building, could operations be resumed elsewhere?  If so, how long would that take.  Consider what the impact might be on revenue if the business were to shut down at peak season.  If a retail store were to be out of business during the Christmas season, that might have an impact of 50% of the annual revenue.

It is a good idea to go through the worksheets with an experienced agent or broker.  Having enough Business Income insurance and Extra Expense could mean the difference between staying in business or not after a major catastrophe.  The risk manager should get the business income forms to the accountant as soon as they arrive.  After the financial data is completed, it is a matter of finding a limit that meets the business needs within the budget.

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