The Four W's of Business Income Insurance
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If your business operations were shut down for a period of time due to a fire or other event, how much income would you lose? How much salary would you have to pay and extra expense would you incur to get your business up and running again? How does Business Income insurance even work? It’s okay to admit if you’re not quite sure. Let’s take a moment to break it all down.
What’s the difference between business income and extra expense?
Business Income insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that’s covered under your property policy, such as a fire. It covers the revenue you would have earned, based on your financial records, had the disaster not occurred.
Extra Expense insurance reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period. Usually, extra expenses will be paid if they help to decrease business interruption costs. In some instances, Extra Expense insurance alone may provide sufficient coverage without the purchase of Business Income insurance.
Who‘s required to have it?
Every business, small or large, should have it.
When will my business need it?
It’s needed at the time of a covered loss.
Why does my business need it?
It covers the lost revenue you would have earned, as well as operating expenses such as electricity, that continue even though business activities have come to a temporary halt. It also continues to pay employees, pay your rent/lease while shut down and helps with the cost of relocating to a temporary location.
The four W’s have been answered, but now you need to calculate how much you’ll need (which can be quite difficult). Take some time to put a plan in action with these simple steps:
- Predict how long you’ll be out of business in the event of a devastating loss.
- List out expenses you’ll continue to have (e.g. rent/lease/mortgage, utilities, payroll, insurance).
- Determine any additional expenses you’ll have in order to continue operation (e.g. relocating, purchasing new equipment, etc.)
- Use our Business Income Calculator to calculate the coverage needed.
For more information on Business Income insurance, contact a member of the ‘A’ Team.
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