Types of Coverage
Business Income Coverage: Designed to replace income that would otherwise have been earned by the business had no loss occurred. Business income is generally defined as the net profit or loss before taxes, plus continuing normal operating expenses, including payroll. This insurance definition contrasts with the accounting definition of net profit (or loss), which is the net profit after taxes. Coverage is generally limited to the loss of income sustained until the property is restored or for a specified period of time following the physical loss or damage. Other limitations apply to the period for which “ordinary payroll” coverage is included (often 60 days).
Extra Expense Coverage: Designed to pay for necessary expenses incurred during the period of restoration of the property because of the loss or damage to the property. Extra expenses include those necessary to continue operating the business at its original location or at a temporary replacement location until the original location is repaired. Extra expenses may also include expenses that minimize the time your business is unable to operate or those necessary to repair or replace damaged property or valuable papers and records.
Contingent Business Interruption Coverage: Designed as an extension of coverage to cover loss of income incurred due to a property loss at key supplier or customer location. For example, if a key supplier experiences a fire at its plant and is unable to deliver parts or goods necessary for the continuation of your business, you may have a claim for a contingent business interruption loss.
Civil Authority Coverage: Covers loss of business income and extra expense due to the government’s denial of access to property or due to a covered loss at a location owned by others. A waiting period may apply before coverage begins, and coverage generally applies only for a few weeks.
Ingress/Egress Coverage: Coverage may be provided for loss of business income and extra expense when you cannot gain access to your property without the government action required under the coverage for closure by a civil authority.
Miscellaneous Related Coverage: Other related coverage may include dust and debris removal coverage, event-cancellation coverage, valuable-papers coverage and service-interruption coverage.
Possible Coverage Adjustments
Extended Period of Indemnity: May extend period for loss of income coverage for a specified time beyond completion of repairs.
Definition of “Suspension”: May determine whether a complete or partial cessation of business is needed to trigger coverage.
Resumption of Operations: May limit business interruption loss to the point at which operations can be even partially resumed, even though the business may not be able to fully sustain itself.
Coinsurance Provisions: Requires that policyholders must pay a share of business income loss if the actual loss sustained is substantially higher than the estimated income established at the time insurance was purchased.
Agreed Value: Establishes in advance a maximum for recovery in any given month.
Covered Locations: Identifies what locations are covered. There may be extensions of coverage for “newly acquired locations” to cover property recently acquired and for property at locations not owned by the insured.
Building Ordinances: May provide coverage for the additional time to rebuild due to compliance with building ordinances.
Electronic Media and Records Limitation: May limit replacement period for electronic data and documents.
Typical Exclusions
Idle Periods: Coverage is generally excluded for periods when operations would have been idle.
Interference: Additional costs for rebuilding due to labor unrest may be excluded.
Loss of Contracts: Income loss on long-term contracts may be limited to period ending with completion of repair or replacement.
Consequential Losses: Coverage for consequential losses may be excluded; however, business interruption policies may contain an extension of coverage for such losses.
Utility Service Interruption: Precludes coverage for interruption of services from utilities.
Finished Stock: For manufacturing operators, recovery for lost profits on finished stock may be covered under physical damage to property rather than under interruption.
DO NOT DELAY in contacting your insurance company. Give notice quickly to avoid penalty or voided coverage. Refer to the steps listed above in making a property insurance claim.
