How it works
After a covered property loss, business income pays lost net income and continuing expenses such as rent and payroll during the restoration period, subject to the policy's terms. Extra expense pays reasonable costs to keep operating, such as a temporary location.
Things to check
- Waiting period before coverage begins
- Whether the limit is a dollar amount or actual loss sustained for a period
- Extended period of indemnity after reopening
- Civil authority coverage
The period of restoration
Business income generally pays for the period it should reasonably take to repair or replace the damaged property, starting after a waiting period, often stated in hours. It ends when the property should be repaired with reasonable speed, not when customers return. Extended business income coverage adds time after reopening while sales recover.
Estimating what you would need
Start with what the business would earn and spend over the months a serious rebuild could take. Include net income plus continuing costs such as rent, loan payments, payroll you want to keep and utilities. Some BOPs cover actual loss sustained for twelve months rather than a dollar limit; if yours has a limit, make sure it is large enough for a long closure.
Related coverage
- Civil authority, when authorities block access because of nearby damage
- Dependent property, when a key supplier or customer suffers a loss
- Utility service interruption, when power or water is cut by damage off site
- Extra expense, to rent temporary space or equipment and stay open
Keeping records
A claim is measured using your financial records. Keep tax returns, profit and loss statements and payroll records stored away from the business, for example in cloud storage, so they survive the same event that closes the doors.
Frequently asked questions
Does business income cover a slow season?
No. It responds to income lost because of a covered physical loss.
Is a pandemic closure covered?
Business income usually requires direct physical loss or damage to property. Many policies also contain virus exclusions. Read your policy and ask your agent.