Business Income Coverage Form Definition

What is the business income coverage form?

The Business Income Coverage (BIC) form is a type of property insurance policy, which covers the loss of income of a business due to a slowdown or temporary suspension of normal operations, arising from damage to its physical property .

Coverage generally includes loss of income, but may exclude some ordinary operating expenses, such as utilities. Coverage generally applies for the time necessary to repair or replace damaged property. However, for additional premiums, the term could be extended to cover a specific number of days after the repairs are completed.

Key takeaways

• The Business Income Coverage (BIC) form is insurance that covers loss of income due to damage to the physical property of a business.
• While property insurance covers physical damage, business income coverage pays for income lost during the restoration period.
• However, the restoration period is generally limited in time, which is typically 30 days, although it can be extended for an additional cost.

Understanding the Business Income Coverage Form

Commercial property insurance covers damage to a business's physical property as a result of an event, such as a fire. Property insurance also covers damage to merchandise and equipment at the business location, whether the business owner owns or rents the location.

If the damage is extensive, it may take some time for the business to return to operational performance. During this waiting period, while the physical business is reestablishing, revenue can drop significantly or stop altogether.

Business income coverage provides insurance for the loss of business income due to damage to physical property during a covered event. While the business is being repaired, called the restoration period, business income coverage will help pay for additional expenses and lost income. However, the restoration period is generally limited in time, which is typically 30 days, although it can be extended for an additional cost. Business Income Coverage (BIC) is also called Business Interruption Coverage.

Although it may vary, depending on the insurance company, there are standard coverages within the business income coverage. However, in many cases, a rider can be added, providing extended coverage, but would likely cost an additional premium.

Business income coverage

Here are some of the most common costs and expenses covered by BIC:

• Mortgage and rent payments
• Employee salaries and payrolls
• Loss of income or net profit during the restoration period
• Loan payments
• Tax payment

Business Income Coverage Exclusions

As with most insurance, the policy will not insure you against acts of war, government seizure, and nuclear risks. Other events that are typically excluded from business income coverage may include:

• Extreme weather events, such as earthquakes, floods, and landslides, as these events generally fall under a separate policy
• Certain operating expenses, such as marketing, insurance, and funds allocated for research and development.
• Epidemics, diseases and viruses

The cost of business income coverage can vary depending on the industry involved and the location of the business. A business location that is close to the coast and is more prone to negative events, such as hurricanes, would likely mean higher premiums for the policy. A restaurant, for example, might have to pay higher premiums as the industry is more prone to fires than most businesses.

Determination of coverage

The insurance agent selling the business income coverage policy should help the owner determine the amount of business income to cover. Additionally, policies may include an additional expense as a category of coverage. An additional expense is any other expense incurred by the business during the property damage period, which would hasten the return to normal business activity. However, to be covered, an additional expense must not cost more than the amount of business income it generates.

The process of determining the details of the business income coverage policy requires the owner to break down the items of business income and expenditures, as well as create contingency plans to determine the appropriate and allowable amount of coverage. An owner, for example, can analyze past earnings and calculate earnings forecasts to determine the amount of coverage. This process is critical because if the business income coverage policy does not cover all costs, the business owner would have to pay the remaining costs out of pocket.

Special considerations: a second location

Business income coverage covers loss of income as a result of an event, but that coverage stops if income resumes. If the business can be started from another location to begin doing business, even before the property is repaired, the business income coverage will cease and will only cover the time the business was unable to operate. However, some policies may allow a specific rider to be added to the coverage, which would allow additional protection.

Many insurance companies offer extended business income coverage, which helps cover lost income if the income has not returned to normal operations. Even after the restoration is complete, it can take a while for the business to return to normal business operations.

The expanded business income coverage would cover the time after the restoration is completed and when the business income coverage has elapsed. This additional coverage helps protect the owner from lost income as the business returns to profitability more slowly than anticipated. Both the time frame and the amount of coverage would be stipulated in the extended business income coverage policy.

Sample Business Income Coverage Form

A company called Mary's outfits makes sets of clothes and sells the items from its one store. Unfortunately, there was extensive damage to Mary's store as a result of a fire, which damaged her inventory, the equipment used to make the clothes, and other damage to the building itself. As a result, it will take approximately four months to complete the restoration of the business.

Mary has property insurance coverage, business income coverage, and business income coverage extended for 30 days after restoration. Mary also added additional expense coverage to help pay for the cost of manufacturing her product elsewhere.

Turns out, Mary was able to make the costumes elsewhere and the restoration was completed in three months. However, Mary's income did not return to normal once the restoration was completed.

Here's how Mary's coverage developed:

• Property insurance covered restoration of physical damage.
• Business income coverage covered profit and loss losses during the three-month restoration period.
• The additional expense coverage covered the additional costs of making the clothes elsewhere.
• The extended business income coverage paid Mary for lost income for 30 days after the restoration was completed and her business resumed operations.

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Business Income Coverage Form Definition

Source: https://thinkrichbefree.com/business-income-coverage-form/

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