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.

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