Loss of Business Income
Loss of business income resulting from losses covered by a Commercial Property policy, to either building(s) or business contents, can result in a reduction or complete loss of business revenues. The resulting losses can either substantially harm the business in its operations or even put a business out of business. Business Income coverage applies to losses suffered during the time required to repair or replace the damaged property. It may also be extended to apply to loss suffered after completion of repairs for a specified period of time.
Description of Coverages
There are different types of insurance coverage depending upon the type of business involved in the loss. Multiple time limits, coverage amounts, form variations and endorsements are available for Loss of Business Income and should be discussed in detail with your insurance agent. Listed are a few of the most common types of coverages available.
Business Interruption: Coverage will pay for the actual loss of business income you sustain due to the suspension of your operations during the period of reconstruction. Business income includes the net income that would have been earned or incurred by the business and the continuing normal operating expenses incurred. Designated payroll can be included in the insurance coverage for owners, officers, key employees and other employees depending upon the specific needs of the business. The time it will take to repair or replace the damage is a significant factor in the amount of insurance coverage needed to fully protect a business loss of income.
Extra Expense: Coverage for the expense incurred by the business during the period of restoration that it would not have been subjected to if there had been no physical loss to building or business contents caused by a covered peril.
When a business income loss occurs, the insured is obligated to take reasonable steps to try to minimize the loss. Expenses incurred to reduce the loss are covered as part of the business income loss. The coverage will typically limit such expenses to those expenses that reduce the business income claim.
Contingent Business Interruption: Coverage is to replace a business’s loss of income resulting from a covered loss, damage, or destruction of property to a key supplier of the business. This can include direct “suppliers” of goods or services to the business. The property damage to these suppliers must be vital to the business’s continued operations.
Rental Value (Loss of Rents): Loss of Rental Income Value property insurance that covers the loss of rental income when a building that is rented out to others has been damaged by a covered cause of loss. Coverage is also provided for the fair rental value of the portion of the premises occupied by the insured. Rental value insurance can be provided by a business income coverage form or a specialized rents or rental value coverage form. Any business that receives rental income as its primary source needs to have protection in the event of a covered Property Loss resulting in all or a portion of the rental income to cease until the reconstruction is complete. This would include Apartments, Dwellings, Commercial Buildings Leased to others and much more. The time to repair or reconstruct the entire property needs to be considered when determining the limit of coverage, which often will extend longer than 12 months considering the process to design, secure the proper construction permits, find a contractor and then complete the project. Often times this may take more than a year, often two or even longer.
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