Vail Daily column: Consider business income coverage
July 19, 2015
Question: What is business income coverage and why does a business need it?
Answer: Most people would never consider opening a business without buying insurance to cover their property. But too many business owners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. A typical property policy will cover the cost of repair or replacing buildings or equipment, but it will not cover the loss of income a business is likely to experience during the time period from the occurrence of the loss to the resumption of the business operation.
Business income, sometimes referred to as business interruption, is coverage that replaces a business's revenues and extra expenses in the event of covered property losses including fire, theft, vandalism or natural disaster. Since the standard policy does not cover loss of business income or extra expense, an additional form or endorsement to provide that coverage is needed.
Helps Avoid Going out of Business
In the case of a fire, the property portion of a business policy may cover damage or loss to the building and personal property, but not the income stream of the business or the extra expenses it will experience. During the time the business is recovering and being restored from a loss, payroll, mortgage or rent, utilities and other expenses continue. In order for a business to keep operating after a loss, it will need to have a continuing income stream to pay those expenses to avoid going out of business.
Extra Expense Coverage
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Extra expense coverage is a supplement to business income coverage. It is designed to pay for extra expenses incurred that would not have been there in the absence of the loss. For example, if a business must move operations to a temporary location while repairs are being done, then the extra rent and relocation costs would be covered as extra expenses. Loss of business income and extra expense coverage increase the policy limits and are necessary coverages that are used to ensure the business will be operable while in restoration.
Business income/business interruption coverage can be one of the most misunderstood of all property coverages. The more you as a business owner understand the details of this coverage, and what is necessary for a full indemnification of loss of income and expense, the better the opportunity to have little effect from an incurred loss. Determining proper coverage limits and keeping accurate records should be essential to any size of business.
Sonia Becerra is a commercial lines agent with Wall Street Insurance Inc. in Edwards. The Wall Street Insurance team of highly specialized agents has been serving the insurance needs of the local community and vacation owners for the past 31 years. Call Wall Street Insurance at 970-926-4900 with any of your insurance questions or send an email to firstname.lastname@example.org.
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