What is Business Income Coverage?

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Speaker 1: At Worthen Insurance, we have a commercial department that offers business insurance to our clients. And so we’re going to talk about a coverage today called business income coverage. You may have heard of it as business interruption or loss of income, and that’s all the same thing. So we might refer to those phrase as business income, business interruption, loss of income. Nevertheless Molly, tell us what is business income coverage?

Molly: So business income is a type of insurance that covers the loss of income a business will suffer after a loss occurs. Basically, it’s designed to do what the business would have done for itself had the loss not occurred.

Speaker 1: Okay. And does it have to be a covered loss or just a squirrel gets in the attic?

Molly: Definitely a covered loss such as a fire. It provides coverage when your business shuts down temporarily due to a fire or any other covered loss. It covers the business owner’s net income plus operating expenses that will be continued on, like rent and insurance and payroll while your property is being repaired or replaced.

Speaker 1: That is important to be able to cover payroll, so you also don’t lose employees!

Molly: Yes.

Speaker 1: How long does business income coverage last? What’s the max amount of time that you could receive that coverage?

Molly: So typically it is 12 months max. And it can be six months, three months. Typically it probably would be three to five months to get something repaired. Speaker 1: Worst case scenario, like-

Molly: 12 months.

Speaker 1: Even after a hurricane and there’s a labor shortage, a material shortage, it might take longer. Okay. Could you give me an example of when I would use that coverage? Under what circumstances?

Molly: So this coverage is good to have in the event that you have a covered loss and you cannot operate your business due to shutting down and having that damage in your building, causing your business to not be operated in. So let’s say I own a commercial office building that I rent out to a tenant, the office, suffers a fire and they can’t work out of it anymore. I’m getting rent from that. I’m going to want to continue getting rent for that. So you would definitely want this coverage so that it covers that loss of income during that time that you are repairing the building and the tenant can’t use the building.

Speaker 1: So in that scenario, the rent that a tenant pays is your income and you need to keep getting that income because you have to keep paying your mortgage as a property owner, for instance. So if one tenant is paying you $10,000 a month, you don’t have to just take that out of your budget and not have $10,000. Okay, and so while that building is being repaired, you have it.

Molly: Yes. Then that income will be replaced.

Speaker 1: Okay. Well thank you so much, Molly.

Molly: No problem.

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