Business Income Insurance: What It Is, How to Get It
If your property is damaged and you can't operate your business, this type of insurance can help with expenses.
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Lead Writer & Content Strategist Business income insurance covers the revenue your business loses while you recover from property damage.
In an extended shutdown, these business insurance policies can provide the financial support needed to pay employees, cover rent and keep the lights on.
Business income insurance often included in a business owner's policy along with property and liability insurance. We recommend purchasing a BOP instead of buying policies separately to save money.
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What is business income insurance?
Business income insurance is also called business interruption insurance. This insurance protects your revenue if you suddenly have to stop normal operations because of property damage.
Business owners who have physical locations should have business income insurance. For example, say your restaurant has to close after a grease fire damaged your kitchen. You can't earn money if you can't serve customers. Business income insurance will help make up for those lost days until you can open your doors again.
What does business income insurance cover?
For your policy to pay out, your business must close due to a covered property loss. Business property insurance usually covers damage caused by:
- Theft.
- Fire.
- Wind.
- Lightning.
- Falling objects.
Generally, business income insurance will help cover lost revenue and operating expenses until your business can reopen. Policies vary, but the following are usually covered:
- Lost net income.
- Payroll expenses.
- Loan payments.
- Mortgage or rent payments.
- Taxes.
- Routine bills.
- Temporary relocation expenses, if you have extra expense coverage.
The lost net income amount is based on your business's financial records. You may be asked to provide sales records, profit and loss statements, tax returns, payroll records and other information to establish your income and expenses.
Additional options and endorsements
You may be able to add the following to expand your coverage for a business interruption:
- Dependent properties coverage. This protects against loss of income that results from damage to properties you don't own. For example, it could provide coverage if your primary supplier’s warehouse is destroyed by a fire and you can’t produce your products as a result.
- Extra expense coverage. This can help with expenses that fall outside normal day-to-day operating expenses, like renting a temporary business space or leasing equipment while yours is in the shop.
- Utility services endorsement. This covers lost income that results from disruptions to electric, gas or water service.
- Civil authority coverage. This applies when a government entity restricts access to your premises as a result of damage to a nearby property.
» MORE: How to get business insurance
What does business income insurance exclude?
Property insurance policies typically do not cover damaged caused by:
- Floods.
- Earthquakes.
- Communicable diseases.
Since these are not covered losses under a property insurance policy, your business income insurance will not kick in to make up for lost revenue.
Save up to 30% on business insurance
NerdWallet Small Business helps you get real-time quotes from 30+ insurers, and instant access to your Certificate of Insurance (COI) through our partner, Coverdash.
How long does business income insurance last?
Your policy will cover specified expenses for a certain number of days or period of restoration. The standard restoration period is 30 days, but it can be extended to as long as 360 days, according to the Insurance Information Institute .
Most policies have a waiting period between the event that caused damage to your property and when the period of restoration starts. Policies vary, but it can be anywhere from 24 to 72 hours. Think of that as your deductible — one to three days of revenue.
How much does business income insurance cost?
Business income insurance is usually not sold by itself. That makes it hard to determine a precise cost for this type of coverage. But the median business owner's policy costs $83 per month, according to online insurance brokerage Insureon . That includes business income coverage along with property and general liability insurance.
As always, insurance costs vary depending on the specifics of your business. These factors might influence the cost of your business income insurance:
- Coverage amount. Generally, the coverage amount is based on your estimated income for the next 12 months and the length of time it would take to repair your damaged property and reopen your business. The more coverage you buy, the higher your premiums will be.
- Type of business. Because a restaurant has a higher fire risk than a shoe store, it would generally pay higher rates.
- Number of employees. The more employees a business has, the more it will pay in premiums.
- Location. A business located in an area that often experiences high winds or storms would likely pay more than a similar business in a location with moderate weather.
- Prior claims history. If you've made business income insurance claims in the past, your rates will be higher.
How to get business income insurance
Most businesses have business income insurance via a business owner's policy. Here are our picks for the best BOPs.
As you shop, take these steps to make sure you understand your policy's business interruption coverage.
Review your policy thoroughly
Know what’s covered before you buy the policy, not later when you need to file a claim. Carefully review information about the following:
- Specific events that trigger coverage.
- Causes of loss not covered.
- Income and operating expenses.
- Period of restoration.
- Waiting period.
Understand the waiting period
If the policy you’re considering includes a waiting period, get more details about it. Will you be responsible for losses during this 24 to 72 hour period? Or will your insurance cover losses from the first day of the shutdown, after the waiting period has elapsed? If losses will not be covered during the waiting period, you may have the option to shorten it.
Keep your claim documentation
If you file a claim and it is denied, keep your documentation. You may be able to appeal the denial, qualify for another form of assistance or take a deduction on your business tax return.
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- 1. Insurance Information Institute. Do I need business interruption insurance?.
- 2. Insureon. Business Owner's Policy.
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