Understanding How Business Income Insurance Protects You

There is no protection available that will save a business that is failing because of operational issues or revenue problems.

…But there is insurance protection against the inevitable.

Business income insurance helps cover you in the event of a rainy day, week or month.

Check out this overview to understanding business income insurance and how it can keep your business up and running after a disaster.

What is Business Income Insurance?

Business income insurance is a policy that protects business owners against income loss due to a disaster.

It doesn’t matter whether the event is a preventable fire or a natural disaster.

In many cases, the income lost is because of the need to close to deal with rebuilding or repairs.

But there are cases where income is lost because of the disaster itself.

For example, a store owner might remain closed through a blizzard or tornado in the area.

Even if there is no damage directly to the business, the fact that the National Weather Service issues an emergency means his business cannot operate on those days.

Business income insurance would cover the loss of income during the days the business needed to close for safety reasons.

Insurance Expenses

Business interruption insurance isn’t a separate policy itself.

It’s usually available as an add-on to your comprehensive insurance or property/casualty policy.

The expense of the additional coverage can be added to your company’s expenses on a tax return.

Insurance premiums are considered ordinary business expenses, making them tax-deductible.

Ordinary business expenses include anything that is a standard cost in your industry.

State laws, leasing contracts and other regulations require that business owners carry a certain minimum amount of insurance to remain in operation.

Home businesses may not get the same advantages as a brick and mortar business.

Consult with a tax professional to determine which and how much of your insurance expenses can be written off on your taxes.

What’s Covered?

Business income insurance covers most of the standard natural disasters and their effects on your business.

Here is an overview of the standard coverage:

Profits

Insurance providers reference your sales history to estimate reimbursement for profits lost.

This history usually goes back only a few months which can be a setback if your company recently experienced a downturn.

Fixed Costs

Business income insurance covers fixed costs.

Fixed costs include normal operating expenses that are required to do business in your industry.

One-time expenses may or may not included in this number.

Like revenue, these costs are determined based on what you’ve spent in the same expense categories in the recent past.

Temporary Locations

There are some companies that can’t wait for an office to be rebuilt before continuing operations.

If a company finds a temporary office location, the expense of the new location is covered in some policies.

Expenses include the cost of moving services and the rental of the new space.

Commission and Training Cost

The hidden cost of replacing equipment comes when you have to deal with upgrades in software and machinery.

Consider a company with all outdated computer equipment.

After upgrading to new desktops with updated operating systems, the staff would need training on how to use the new machines.

The same scenario could apply to the copy machine, phone systems or printers.

Paying a technician for the training is a cost most business owners don’t expect.

A business income insurance policy can cover this to help owners get back on their feet.

Extra Expenses

There are policies that cover variable expenses.

These include any new or old costs that are needed in order for the business to regain operation.

Variable expenses vary based on your industry and the size of your business.

Government Mandates

The disaster itself isn’t always the end of an incident for a business.

Sometimes that government requires that businesses remain closed until proper cleanup or sanitation is completed.

Business income insurance covers the loss of revenue during this mandatory closure.

The closure could be direct or indirect.

For example, street closures around the city are an indirect form of a forced business closure.

Employee Wages

Business income insurance protects more than profits during a closing.

Employee wages are important to prevent a company from losing its employees.

Coverage includes employee wages so that owners can still make payroll while they are out of operation.

Taxes

Tax bills don’t go away in the face of natural disasters.

If your business owes taxes, the government expects some plan to make payments even if your business is temporarily closed.

Business income insurance helps you remain compliant and avoid penalties by covering tax expenses.

Loan Payments

Lender payments are also still expected during a business closure.

If lenders aren’t paid, they can move a loan into default which means the entire sum is due at once.

Business Interruption coverage helps the owner continue to make monthly payments on the loan until the business reopens.

Who Needs Business Income Insurance?

Smaller businesses that don’t account for major interruptions like these could end up closing permanently without the right business income insurance.

Any collateral put up by a business owner is at risk until lenders receive payments as agreed.

Since many small business owners use personal collateral, this means the potential of losing personal and business assets all at once.

Getting the right amount of coverage is an important first step to choosing a policy.

The cost of insurance is not the amount of the premium but the amount you would lose if a fire or natural disaster struck today.

For more information on how to identify the right business insurance policy for your company, visit our website.