You’ve worked hard to build a stable foundation for your small business—but could you withstand an event that forced you to close your doors for a period of weeks or months?
What is business income insurance?
Imagine that the theft of critical equipment forced you to stop operating for an extended period of time, how would you cover ongoing expenses like rent and personnel without your usual business income? Business income insurance, also called business interruption insurance, provides coverage for profits lost due to covered events and can help cover your payroll expenses, rent or mortgage, utilities, taxes, and even the cost of moving to a temporary location—ensuring that your temporary closure stays temporary.
What events are covered?
Covered events will vary policy to policy, but most will cover damages due to fire, theft, wind, hail, vandalism, or snow. In addition, your business income policy may cover events that have effect your supply chain; if you are a contractor and lose access to your place of operation for only a week, but your main source for lumber is unable to supply you for a month, your business income insurance will cover you for the full month—or as long as it takes to find an alternative supplier. Most business income policies exclude coverage for events caused by flood or earthquake, though coverage for these events is attainable through a special endorsements.
How much coverage do I need?
There are two basic figures to look at when deciding how much business income insurance to purchase: how much income do you expect to pull in over the course of a year? and, how long is it likely to take for you to resume business after a significant disaster? Taken together, these numbers provide a rough estimate for the amount of coverage you will need should disaster strike.
If you are a small, nimble business that trades largely on the expertise and knowledge of your employees, such as a law firm or accounting agency, it may not take much time for you to find a new or temporary office space, replace or move your computers and furniture, and get back to work. If, on the other hand, you are a large, complicated business that depends on having a backstock of inventory, expensive and difficult to obtain equipment, and industrial space that is specific to your needs, it may take much longer for you find an appropriate rental space, replace your inventory, obtain new equipment, and resume operations. Make sure you think through all the steps that you will have to take to reopen after a halt in operations and take factors that are specific to your area, such as the rental market and availability of suitable commercial spaces, into account when making your estimate.
How do I purchase business income insurance?
Unlike most of the policies we discuss on this blog, business income insurance is not typically sold as a stand-alone policy, and is instead usually included in, or purchased as a rider for, a business owner’s policy (also known as a BOP), or less commonly, a commercial package policy (or CPP). If you already carry one of these policies, there is a chance you already have business income coverage and simply need to review your policy and make sure your current coverage meets your needs. If your existing BOP or CPP doesn’t include business income coverage, you can purchase it as an endorsement on your existing policy.
Where can I go for help?
Because business income policies vary so widely from business to business, this is an area where independent insurance agents can be particularly helpful. Your agent can help you look at your existing BOP or CPP, assist you to evaluate your business’ exposure to risk, and advise you on how much coverage you should purchase—or whether you need additional coverage at all.
Remember, independent insurance agents like the ones at Moreland Insurance work for you, not your insurance carrier, and can be trusted to provide unbiased professional advice on this and all other insurance matters. We hope you’ll trust us with your business and other insurance needs.