Business Income Insurance: Your Frenemy

SETH KAIMAN
HNI Account Manager

First and foremost, Business Income insurance is your friend. Should your business operations be interrupted by damage to real property by a covered peril (fire, wind, etc), the coverage will (in simplest terms) cover the lost profits plus continuing expenses your business incurs. It also can include extra expense and non-critical employee payroll (but let’s save that fun for a little later).

Like some good friends, however, Business Income insurance can be hard to understand, frustrating, and require thoughtful consideration.

The Business Income Insurance Worksheet — Pain, but Ultimate Gain

You’ve seen that dreadful Business Income worksheet in one form or another over the years. Let’s get it right out of the way — nobody likes them (and if you do, it’s probably time for some new hobbies).

In spite of the time that may be required to fill these out, the Business Income worksheet serves a dual purpose: 1) it helps as a guide in calculating the appropriate amount of insurance needed, and 2) it is often required to remove the co-insurance provision, which is a penalty that is assessed in the event of a claim for not insuring to value. [Coinsurance provisions can add complexity to this mix — we'll discuss them in a future blog.]

While the worksheets will address specific dollar values that can be determined, it also is important to think of the numerous time-sensitive variables that may come into play if business operations are interrupted (for example, how long will it take to find a replacement contractor, how readily will replacement equipment be available, etc).

Nothing Wrong With Being Ordinary

Ordinary Payroll is another important topic to address. While the policy wording for what is included and excluded will be much more detailed, a basic way to delineate what is considered “ordinary payroll” is looking at your salaried vs. non-salaried employees. Non-salaried staff are considered ordinary payroll, and depending on your Business Income insurance policy terms, this can be included, excluded, or limited to a specified number of days.

Including Ordinary Payroll can help in retaining valuable, but non-critical employees (and keeping competitors from swooping in and plucking them up) for when operations resume.

Extra! Extra! Read All About It!

While Business Income insurance coverage is all good and well, most of us don’t want to be sitting around twiddling our thumbs while we can be getting back to work — now it's time to also think about Extra Expenses.

If Business Income is the cake, then Extra Expense is the icing (and who doesn’t love icing?). In a nutshell, Extra Expense is an additional coverage (but typically included in the Business Income limit) that pays for such items as rental of temporary premises and equipment, overtime pay, and other costs that may reduce down time. Depending on your operations, these costs can be, well, costly.

Join the Club

Business Income insurance is one of the most (if not the most) complex and misunderstood property coverages, so if you feel unclear or frustrated by it, you probably are in good company. While the basics have been outlined, we would be happy to discuss your Business Income in more detail. At HNI, our ultimate goal is to turn Business Income from your frenemy into your best friend.