The complete shutdown that so many businesses experienced during the first several months of 2020 raised more questions than ever on what exactly a commercial insurance policy covers when a business is suddenly unable to operate, and its income is affected.
In the interest of continuing to educate our fellow business owners on what the capabilities of their insurance coverage is, we’re pleased to discuss the subject of Business Income coverage in our blog this week.
What Does a Commercial Property Policy Cover?
A Commercial property insurance policy covers physical property damage to a business’s equipment and merchandise that results from a catastrophic event like a fire, theft, lightning strike, or smoke damage.
What it might not cover, however, is the loss of income the business incurs during the time that it is being repaired and brought back to a pre-loss state. This is where Business Income coverage (also known as Business Interruption coverage) comes in to play.
How Does Business Income Coverage Work?
Depending on the extent of the damage, it may take time for the business to get back up-and-running as usual. During the period in which the business is brought back to its pre-loss state, income can decline or cease altogether, creating financial hardship for the business.
Business Income coverage provides insurance for the loss of business income due to damage to physical property. This means that during the business’s restoration period, the Business Income coverage will be responsible for replacing profits you would have made or provide funds to operate in a temporary location for the time being.
What Does Business Income Coverage Address?
Business Income coverage WILL address the following:
- Mortgage and rent payments
- Employee wages and payroll
- Loss of net income or profit for the period of restoration
- Loan payments
- Tax payments
Business Income coverage WILL NOT address the following:
- Epidemics, diseases, and viruses.
- Acts of Government (war, mandated shutdowns, etc.)
- Extreme weather events, such as earthquakes, flood, and mudslides. These events typically require their own separate policies.
- Certain operating expenses, such as marketing, insurance, and funds allocated for research and development.
Is Business Income Coverage Right for You?
As with all aspects of insurance, the best way to determine whether Business Income coverage is ideal for your business is to discuss the possibilities with your agent. Should you have any questions, or like a review of your current Commercial Lines coverage, please don’t hesitate to reach out to our team at J. Hoffman Insurance at 845-239-4787 or Jason@jhoffmaninsurance.com.