Lesson Learned: The Need for Business Income Insurance

Owning and operating a successful business in today’s economy is no easy task. However, beyond simply making ends meet and ensuring your doors stay open, you also should be protecting your business against the unexpected with business income insurance. If your company is forced to shut down because of a disaster, business income insurance will stand in the gap and provide the means for you to continue to pay your bills. Having this coverage is beneficial for any company that is required to pay rent, employee salary, or other expenses while having its doors closed and its revenue stream interrupted. No one wants to anticipate that their business income could be interrupted, but it happens. And when it does, business income insurance will ease the pain until revenue returns.

What is Business Income Insurance?

The overarching purpose of business income insurance is to replace lost income if you are unable to operate your business temporarily due to a covered loss, like theft or fire. This can include incidents like a tree falling through the roof of your business, impacting your ability to operate as usual. Could you right now withstand this kind of interruption in your revenue and still be able to pay your employees, rent, and other bills? If not, then you might want to look deeper into business income insurance. 

Who is Business Income Insurance For?

All businesses can benefit from business income insurance. However, some are in greater need of coverage when compared to others. Obviously, if you do opt for business income insurance, you need to get a policy that has a maximum coverage limit that meets your business’s needs. Keep in mind that business income policies usually have a coverage limit that will cap the compensation off at a certain amount relating to any claim. 

While this type of policy is applicable for virtually any business, it is essential and can mean the difference between a bump in the road for your business and its closure if you rely on equipment like machinery, or your building or facility to generate income. This includes businesses like salons, restaurants, and retail stores. If you aren’t sure your business would benefit from such coverage, consider the factors outlined below;

• How long would it take for your business to recover from a common disaster like a fire?
• Are your security system and alarm configuration up to date and in working order?
• Is there office space in your area readily available, and can you afford the cost to rent it?

Why Do You Need Business Income Insurance?

If your operations are stopped for an extended period of time, the resulting loss to your bottom line can be staggering. This is to say nothing of the costs associated with paying employees who are unable to work or considering any damage that might have been done to your reputation as a business. The loss of profits can put even the most financially stable businesses at risk. In fact, in the event of a flood, fire, or other covered peril, many businesses that depend on their assets or property would be forced to permanently close their doors without this vital coverage.  

What Does Business Income Insurance Cover?

The following is a breakdown of what you can expect from business income coverage. Of course, you should always speak with your insurance agent to go over your policy specifics but in general, the following coverages are part of business income insurance: 

• Loss of Revenue: Your business will get reimbursed for any lost revenue you experience during your temporary shutdown due to a covered peril. 
• Staff Wages: Another factor to consider when your business is hit with a tragedy is paying your employees. Thankfully, business income insurance will cover payroll while your business is not generating revenue. 
• Rent or Lease Payments: This coverage will also ensure that you can pay your rent or lease while you work to get your business reopened. 
• Loans: If you have loans associated with your business, this coverage will provide payment for these loans. 
• Taxes: Of course, we all know the government waits for no one and nothing, so this coverage will ensure you don’t get behind on your tax bill during your business shut down. 
• Extra Expenses: Equipment rentals, new employee hiring costs, training of new employees, and rent for a new facility could all be included in extra expenses associated with a business shutdown. They are all considered part of the coverage of a business income insurance policy. 
• Training: In some cases, after a business shutdown your staff needs training in order to operate new equipment, this is also a covered expense. 
• The Cost of Relocation: When the property where your business was is not fixable, you might be forced to move locations. The cost of this move is another covered part of a typical business income insurance policy. 

What is Not Covered by a Business Income Insurance Policy?

The following are some scenarios that would not be covered under most business income insurance policies:

• Damages to commercial property that are not covered by your policy. 
• Voluntary closure of your business. In other words, you choose to close, not have to for some reason not in your control.
• Undocumented business income cannot be proven and therefore won’t be part of the typical compensation. 
• Incomes of short duration. 
• Utility expenses. 

How Much Does Business Income Insurance Cost?

As is the case with most insurance policies, how much you can expect to pay will depend on various factors, like your industry, the number of employees you have, the level of coverage you choose, and your business location and claim risk. 

Lesson Learned: You Need Business Income Insurance

In the event of an unexpected and awful event, you need to be prepared. Purchasing business income insurance could potentially protect your business, your employees, and even your financial future, making it a worthwhile investment.