Everything You Need to Know About Business Insurance Income Protection

If you’re a business owner who owns a physical office space, store, or building, you might be a strong contender for business income insurance coverage. While no one likes to think about a fire or weather event damaging their business’s property, preparing for the unexpected is important.

Keep reading to learn more about business income insurance and if it’s right for you!

What is Business Income Protection Insurance?

Business income protection insurance is a form of business insurance that will help your company replace lost income if it has experienced property damage and cannot operate as a result.

Let’s say you own a boutique that burns down because of an accidental fire. As a result of the fire damage, you are unable to generate income from your business. In this situation, business income protection insurance will help cover the lost income until you can safely reopen. You can use the benefit amount to keep up on your operating expenses, like monthly bills and payroll.

Company income protection insurance is already included in a Business Owner’s Policy, or BOP. This means that if you have an existing BOP, you can increase coverage or add business income protection coverage as an endorsement to your existing policy.

Business Income Insurance: Terms to Know

Your business income insurance will likely have the following terms – knowing these terms will help you understand your policy thoroughly:

Actual Loss Sustained: The payment you receive from your insurance company covering the actual loss of income to your company.
Business Income: Any income normally received from regular business activities.
Period of Restoration: The time your business cannot operate after a loss.
Extra Expense: When your business is temporarily closed for repairs or if you have to move, you may encounter extra expenses. This also may include the cost of expedited shipping on replacements of your business equipment or inventory.
Waiting Period: The amount of time you must wait after a covered cause of loss before business income coverage begins.
Service Interruption: Also known as Contingent Business Interruption, or CBI, this is the interruption in your business activities or the closing of your business if a third party you depend on has a loss or if your company loses power because of damage to the third party’s property.
Interruption by Civil Authority: Civil authorities may order evacuations when natural disasters strike, like if there is a hurricane. As a result, you may have to shut down your operation. Your business income insurance can help cover lost income if you are interrupted by military or civil authorities.

What is Covered and Not Covered by Business Income Protection Insurance?

Business income protection insurance covers lost income if you need to close your business temporarily due to damage from:

Fire
Wind
Theft

This adds an extra layer of protection beyond a standard commercial property insurance policy. Other costs that this insurance will cover include:

Rent or mortgage payments
Loss of income during the restoration period
Tax payments
Loan payments

Business income protection insurance does not cover the following:

Undocumented income not listed on your financial records
Flood damage – you’ll need a separate policy for this.
Closures from defective power lines. However, you can add an endorsement to your policy to cover this.

Who Needs Business Income Protection Insurance?

If you’re a business owner who relies on a physical location to conduct business, and could potentially be impacted by fire, theft, or wind damage, it’s a good idea to have business income protection coverage.

If you have an existing BOP, you may be able to add endorsements to the existing policy.

Consider adding endorsements if your business relies on:

A physical location
Property to generate income
Equipment

Here are a few examples of businesses that may need this protection:

Service businesses like hair salons and lash lounges, which need their physical location to serve customers.
Retail stores that need brick-and-mortar storefronts to display their products.
Software companies with physical and digital property, like offices, cloud storage, and servers.

Examples of Business Income Protection in Practice

Check out the scenarios below to better understand how businesses income protection can help your business and replace lost income:

You have a bakery in an attached building. A fire breaks out in the store next door and spreads to your business. You must shut down your business temporarily to restore the damage.
A hurricane hits your area, resulting in extensive wind damage impacting the building where you operate a local grocery store. You must close down your business to repair the damage.
You own a technology store that is broken into, and thousands of dollars of valuable inventory is stolen. As you replace the inventory, you must temporarily shut down.

Other Types of Business Income Protection

Outside of lost income due to theft, fire, and wind damage, there are other scenarios that might cause your business to lose income temporarily. In these situations, you’ll want to make sure you’re fully covered and prepared for the unexpected. Here are some other types of business income protection to consider as an extension to your existing policy:

Business income extension for essential personnel: It can be challenging if you rely on several employees to get the job done if they are unexpectedly absent. In this case, this extension can cover the cost of lost business earnings due to employee absences. However, this is meant to provide coverage after damage to the business, and will not cover accidents or illnesses.
Business income extension for off-premises operations: If you conduct business at an off-premise location, like a construction site or in homes, this extension can cover damage to tools and equipment. It can also cover rental fees for replacement equipment.
Business income extension for off-premises utility services: This extension can cover lost income if you ever experience an interruption in utility services, like electricity or water.
Business income for dependent properties: Do you depend on third parties to operate your business? For example, maybe you deal with a manufacturer who makes your product or a shipping service that transports the product. If this third party cannot operate due to a covered loss, this extension will cover your lost income as a result.
Business income extension for electronic vandalism: Electronic hacks and attacks are becoming more and more common. This optional coverage can help if you lose out on income due to a cyber attack.

Benefits of Business Income Protection Insurance

There are several benefits of business income protection insurance – here are some of the top advantages:

Financial stability: Provides a steady income stream, helping cover expenses and payroll in case of unforeseen employee absences.
Employee retention and attraction: Offering income protection even in an emergency can enhance job satisfaction and loyalty.
Peace of mind: Knowing that your business can keep the lights on even during a natural disaster will help you move forward with less anxiety.

How to Choose a Business Income Protection Policy

When you are looking for a business protection plan, keep the following factors in mind:

Coverage limits: Be sure the policy will meet your financial needs during a crisis. Larger companies will likely need more coverage, while smaller businesses won’t need quite as much.
Exclusions and limitations: Check to see what isn’t covered in the policy, like pandemics or flooding. You may need to buy separate insurance or an extension, depending on what you need.
Waiting period: Almost every policy will have a waiting period. Make sure that you’ll be able to withstand the waiting period before receiving benefits.
Risks: Some businesses have more risks than others. For example, if you live in a hurricane or tornado-prone area, you’ll definitely need protection from wind damage. On the other hand, if your business is in an area with wildfires, your policy should cover fire damage.
Finances: Review your finances before choosing a policy. Some businesses keep a lot more liquid cash on hand, so they may be able to keep the business going with minimal help, while others may need a high amount of coverage from their insurance policy. You’ll need to know your annual revenue, payroll, and other operational costs to know how much coverage you need.
Premium costs: You should also know how much your business can afford to pay in premiums each month.

How to Choose a Company Income Protection Insurance Provider

As you shop for business income protection, you should also thoroughly research insurance companies to ensure they have a strong track record. Here are a few tips:

Research providers: Check to see if the company has a history of paying out claims, if they have a high level of customer service, and if it’s easy to talk to a real person as you inquire about the business.
Compare policies: Make sure that the insurance company provides a policy with an adequate level of coverage for a great price.
Customer reviews and testimonials: Reading reviews is one of the best ways to gauge a company’s reputation. More happy customers means you’ll be more likely to have a good experience.

How to Make a Claim: Claiming Income Protection Insurance

Like any insurance coverage, there’s a protocol for making a claim:

Notify your insurer: The first step when making a claim is contacting your insurer if the covered event has occurred.
Documentation: You may need to submit documentation like your business financials, pictures of the damage, medical records, and employment verification.
Assessment: The insurer may send an insurance adjuster to conduct an assessment of the claim to verify its validity.
Waiting period: For this type of coverage, the waiting period is usually only up to 72 hours.
Receive benefits: Once the damage has been verified and you’ve gotten through the waiting period, you’ll start receiving benefits once your claim is accepted.

Keep in mind that the payout you receive on your coverage will depend on the income and expense records you’ve kept for your business. This means you need to be vigilant about documenting every source of income and expense, and you should keep these records in an off-site location – with both physical and digital records.

Common Challenges in Claiming Income Protection Insurance

If your claim gets denied, it may be due to one of the following factors:

Incomplete documentation: When it comes to business income protection, documentation is paramount. Submitting necessary payroll records, financials, and medical documents is incredibly important for your claim to get accepted.
Policy exclusions: Certain instances may be excluded from your policy, which is why thoroughly reading through your policy is so important.
Misunderstanding terms: Some policyholders misunderstand the scope of coverage or submit a claim too early, leading to a denied claim.

Keep in contact with your insurance provider during the claims process to make sure all your bases are covered. If you have questions, don’t be afraid to ask!

Conclusion

Business income protection is vital for financial stability and protecting your workforce. If your business ever encounters an unexpected emergency, this coverage will keep you, your business, and your employees financially covered.

When claiming income protection insurance, choosing the right provider is vital. Luckily, at Think Life, we’re here to support you every step of the way – contact us today to discover if business protection insurance is right for you!

FAQs

How do you calculate business income coverage?

You can estimate your needed coverage by calculating your yearly business income – just subtract the expenses from the revenue. This will help you determine your projected income for the next year. You can calculate the restoration period from this number if your business is ever damaged.

How long is business income coverage?

This type of coverage begins when your business is shut down due to a covered damage, and ends when your business can safely reopen.

What is included in business income coverage?

Business income protection will cover lost income if your business has to shut down temporarily due to a loss. This does not include the cost of repairing the physical damage.