Understanding Business Income Protection

Today we continue our introductory series on Commercial Lines Insurance for personal lines agents, CSRs and underwriters.

Agents who are used to writing personal lines insurance will be familiar with Additional Living Expenses or Loss of Use coverage on their homeowner’s or renter’s insurance policies.  The coverage is designed to provide the insured with a place to live if their home is unlivable during repairs after a covered loss.  Business owners have a similar exposure.  If the building that they occupy is damaged by fire, or some other cause of loss, they will not be able to continue running their business until the building is repaired.  In addition, they may lose inventory, tools, or machines that are necessary to do their work.

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In the world of commercial insurance, this coverage is called Business Income Protection. The traditional Commercial Fire policy does not automatically provide Business Income Protection; a form would need to be endorsed to provide this coverage.  Many package policies do include some level of coverage.  It is important for the producer to read the form and understand what is automatically included in the package policy and what the insured may actually need.

Generally, business income protection provides for the net income and continuing normal operating expenses.  Continuing expenses includes such expenses as payroll and payments required to service debt.  This coverage also includes extra expense coverage.  Extra expense coverage will cover expenses a business may incur to prevent further down time at the business.  For instance, a business may have the opportunity to rent a similar location instead of waiting to re-open after the original premises are repaired.  This is typically good for the business, as its clients will be able to continue patronizing the business, and the insurance company will see less payment due to lost net income.

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When it comes to determining how much business income protection a company needs, it is important to meet with the client and go through a business income worksheet.  If the company is larger than a simple sole proprietorship or partnership, it may be necessary to have the insured go through the worksheet with his or her accountant.  This will allow the agent to protect their Errors and Omissions Coverage and be certain that the insured’s business income exposure is clearly understood both by the agent and the insured.

There are a lot of different ways Business Income coverage can be provided on a policy.  Some provisions include Actual Loss Sustained, co-insurance, Agreed Value, and Monthly Indemnity, to name a few.  We will touch on these in later articles.

About Carly Burnham

Carly Burnham began her insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. She got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how she fell in love with the industry. She saw firsthand the good that insurance consumers experienced by having the proper protection. When Carly moved to Des Moines in 2010, she decided to commit to the industry, and she completed her CPCU in one year finishing it in 2012 and attending commencement in New Orleans. She completed her MBA at Iowa State University in 2014. During this time, she and Tony founded a Gen Y Associate Resource Group at Nationwide in Des Moines. After they had both left Nationwide, Tony recruited Carly to co-author and manage InsNerds.com. She has the difficult task of keeping his constant flow of crazy ideas focused and helping to flesh them out into useful articles. Carly enjoys sharing knowledge and ideas about the future of the industry and finds the website a good outlet for this passion. Carly is involved in the the CPCU Society Underwriting Interest Group. She also writes "Next Wave" a monthly column in the "Perspectives" section of Best's Review.

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