When a fire destroyed a fifty-unit apartment complex, the owners found themselves in a tough situation. The owners had insurance to cover the repairs and replacement of all the damaged units, and because the agent had done his job the owners had business income or loss of rents insurance.
Business Income coverage is a property coverage that is designed to pay the loss of income (rent is this case) following a total or partial shutdown of a business. Business Income is designed to replicate the insured's income stream and covers expenses as if no loss had occurred.
The 50 families that no longer had a place to live won’t pay rent until they have moved back into their repaired units. Chances are, many will move on to other housing and won’t come back. However, as owners, you still have expenses, including a mortgage that will need to be paid. There can be three major parts to Business Income insurance:
- Business income (BI) coverage: Replaces the lost gross earnings during the shut-down resulting from a covered property loss. Loss of rents is considered gross earnings.
- Extra expense coverage: Covers the cost to relocate to another location and continue operations. During relocation, businesses typically incur the extra expenses of rent, equipment lease and the cost of restoring databases. All of this is covered by the "extra expenses" portion of the policy.
- Ordinary payroll: This optional coverage continues paying your workforce while you have no work for them. It prevents your trained employees from accepting other jobs while waiting for your business to recover. This coverage is optional but is recommended in many circumstances.
- How much income do you need to continue operating your business in the event of a shutdown of your premises?
- How much time will it take to fully recover or rebuild?
- Will you need additional coverage for extra expenses such as leasing temporary office space, computer equipment or office machines?