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A Guide to Business Income Insurance

Business Insurance

By Gabrielle Reid | September 4, 2019

40% of small businessesnever recoverfrom unforeseen disasters. While these companies may have insurance to help repair or rebuild it can be incredibly difficult to keep a business going through this process. It takes a good amount of savings or funding – something many companies just don’t have.

Business income insurance also known as business interruption insurance can help in these situations and get your business through difficult times.

This guide will help you understand the ins and outs of business income insurance including how this coverage helps your business what’s covered and how you can plan ahead even for an unforeseen event.

What is business income insurance?

Business income coverage also known as business interruption insurance is one of the most valuable types of business insurance. Unfortunately many business owners aren’t aware of this protection or don’t understand how it can benefit their company.

This type of protection can provide funds for your business to pay essential expenses or even temporarily relocate after a covered loss or during a mandatory evacuation.

Business Income Coverage Includes

Typically a business income insurance policy includes:

  • Payments to replace a loss of income or profits that ordinarily would have been earned based on records of previous financial statements
  • Funds for reasonable additional expenses that help your business keep operating
  • Training expenses for instructing employees on how to operate new equipment
  • Help to temporarily relocate so your business doesn’t have to shut down

You can use these funds to pay your bills and cover the extra expenses necessary to keep your business running during this difficult time.

Exactly what’s included in each business income insurance policy will vary by the insurance company. Your insurance broker will be able to explain the ins and outs of this coverage and find you the policy that works best for your needs.

Period of Time You’re Eligible for Business Income Insurance

There are two types of business income coverage:

  • Limited (Earnings) – Your coverage will cease as soon as the repairs are completed or the mandatory evacuation is over – basically as soon as your business can began operating again. This type of coverage will stop paying out even if you haven’t reached your previous level of earning.
  • Extended (Profits) – Your policy continues to pay out until your business earnings resume to normal subject to the maximum time period outlined in your policy.

What is extra expense coverage?

Extra expense coverage is the part of your business income insurance that can compensate you for additional expenses you may have during this time. This only includes costs you have to bear due to the temporary closure as well as expenses to keep your business running.

This can include:

  • Outsourcing work
  • Employee overtime
  • Extra temporary utilities
  • Advertising
  • Rentals
  • Relocation

These funds must be reasonable – you don’t have a blank cheque to spend whatever to get your business through the temporary closure. Talk to your broker about what your options are and what you can do with this protection to help your business.

Temporary Relocation

Some business income insurance policies might also cover the expenses for temporarily relocating the business to a new location. This may include:

  • Utilities
  • Rentals
  • Purchase of new equipment
  • Rent
  • And other expenses related to relocating

Not every policy provides coverage for relocation. You’ll also need to get the relocation approved by your insurer if you want to be eligible for help.

Limits of Business Income Insurance

There are generally time limits on business income insurance policies. This means that the policy will only provide coverage for a certain number of days. Let’s say it provides coverage for 3 months. Once that time period was reached you would no longer receive payments.

Another factor is your policy limits. Every insurance policy has this. A policy limit is a maximum amount you’ll be paid in the event of a covered claim. Generally you’ll have several options of policy limits to choose from when you purchase this type of insurance. Consider your business expenses and the amount of money it would take to keep you afloat for the maximum payout period of the policy.

Talk to an Broker about Business Income Insurance

There are many scenarios where business income insurance is valuable to your company. Whether you’re forced to evacuate because of a flood or your premises suffer fire damage this coverage can help your business survive a difficult time and get back to running as normal more smoothly.

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