How to keep the lights on, even if you must temporarily close your doors

The unexpected happens — there’s a fire, a natural disaster or your machinery breaks down and the new part is weeks away. Sometimes, you don’t have a choice — you must shut down your business.
But if you’re closed, you still have to pay the bills.
“Make sure the policy limits are sufficient to cover your company for more than a few days. After a disaster, it can take more time than anticipated to get back on track,” says Todd Winter, executive vice president at SeibertKeck Insurance Agency.
Smart Business spoke with Winter about what you need to know about business income coverage.
What is business income insurance and what does it cover?
Business income is the net profit or loss that would have been earned or incurred if the suspension of the business had not occurred, plus any normal operating expenses that must continue during the suspension of the business.
With business income insurance, also known as business interruption insurance, you can cover the actual loss of business income sustained because of a necessary suspension of your operation.
The suspension, however, must result from direct physical loss or damage to real or personal property. Coverage is provided against the same causes of loss covered under your property policy.
Most businesses underestimate the amount of time it takes to return to normal operations. It can take one or two months for investigations and debris removal; two to three months to secure permits for repair; and upwards of a year to reconstruct the property and replace machinery and equipment.
What additional coverage does business income insurance provide?
The business income and extra expense form provides the following additional coverages:

  • Extra expenses are any expenses over and above those that would have been incurred during normal operation of the business. They include expenses incurred to avoid or minimize the suspension of operations; to repair or replace property; and pay for overtime work to speed up the restoration of the business.
  • Civil authority is when access to your premises is denied by civil authority as the direct result of damage or destruction of a neighboring or adjacent property belonging to others. If the damage or destruction is caused by a cause of loss covered by the insured’s policy, this coverage applies. Your premises would be covered for the loss of income during the period of suspension, up to two weeks.
  • Alterations/new buildings provides coverage for loss of income resulting from a delay in beginning operations. The delay must be the result of damage to new buildings or structures, either completed or under construction. Damage to additions or alterations to existing buildings also are covered. The damage must be the result of a covered cause of loss.
  • Extended business income provides the time needed for your former customers to return once the business suspension is over by providing coverage for loss of income until sales return to normal, or up to a maximum of 30 days.

What optional coverages may be included to customize the policy to your company?
Business income coverage is not sold separately; rather it is added to a property or package policy and can be adjusted to cater to specific needs. For example, extended period of indemnity is an option that extends the ‘extended business income coverage’ over the standard 30-day period, to 60 days or up to a maximum of 360 days.
The selected time would depend on the time you estimate it would take for revenues to return to normal after a suspension of the business.

Business income coverage increases a business’ ability to survive a substantial loss, because of this, it is important to have the correct coverage in place before a loss. An experienced agent will be able to walk you through calculating the correct coverage limit and options needed for your unique risk.

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