When you operate a Business, in the event of loss due to an insured peril, your business could not only lose your physical assets – but also could incur various types of expenses and loss of income. These expenses are not automatically covered by the property wording. To protect against these monetary losses you must purchase Business Interruption insurance.
The Types of Business Interruption Insurance
Profits Business Interruption Insurance
Covers the business’ loss of income until the business is back to the same Financial position as it was before the loss. Depending on the type of business, the time needed to replace the income and expenses can be very different.
A 12 month Period of Indemnity is the most usual, however, you can also purchase 18 month 24 and even 36 month Period of Indemnities if it would take your operation longer to recover.
Eg. If you own a building, it could take longer than 12 months. Consider the need to tear down the damaged building and haul it away. Then to design a new building, get approvals and permits, arrange the contractors, rebuild and get re-operational. That doesn’t even touch on getting back to the same profitability level.
To obtain this coverage a Company needs to prepare a Profits Worksheet to determine the required limit of insurance. Part of the decision making includes whether to cover the owner, management and key staff’s salaries in the coverage. After a loss, if an adequate limit was not insured, there can be a co-insurance penalty applied to the loss.
As this coverage is the most extensive, pays for the longest period and for the highest amounts, it also follows therefore that it is the most expensive to purchase.
Gross Earnings Business Interruption Insurance
More economical than Profits coverage, Gross Earnings covers the business’ loss of income until the business is back up and running. The Period of Indemnity for this form typically ranges from 3, 6, 9 or 12 months.
Similar to the Profits coverage, the business must complete a Gross Earnings Worksheet to determine the limit to be insured – and if the proper limit is not insured, there can be a co-insurance penalty applied to the loss.
Like the Profits coverage, part of the decision making includes whether to cover the Owner, management and key staff’s salaries in the coverage.
This coverage is more the middle ground in both coverage and premium.
Extra Expense Business Interruption Insurance
Extra Expense Business Interruption Insurance only covers the necessary expenses the company incurs to get back up and running. This form does not cover Loss of Income at all, nor does it have the option to cover Salaries of Key staff/management.
This insurance typically has lower limits and, with its more limited coverage and shorter time frames, Extra Expense also has the most reasonable premium.