What Is Business Income Coverage? - NYCM Insurance Blog

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Aug 7, 2023

What Is Business Income Coverage?

Learn About Business Income Insurance and Insurance Policy Waiting Periods

As a business owner, protecting your enterprise from unforeseen events is crucial to maintain stability, financial security, and to keep your operation running for years to come. An essential aspect of a Comprehensive Businessowners Policy (BOP) is Business Income Coverage: protection designed to safeguard your business against income loss as a result of covered perils.

While Business Income Coverage can reimburse you for lost income in the event your operation is paused by a covered peril, it’s essential to understand the concept of the waiting period before a loss occurs and how it impacts the amount you are eligible to collect. Continue reading to learn more about Business Income Coverage and how the waiting period is applied in your insurance policy.


What is Business Income Insurance?


Business Income Insurance, sometimes called Business Interruption Insurance, is a type of insurance that helps business owners recover lost income and certain extra expenses when a covered event disrupts their operation. Business Income Insurance on a Business Owners Policy is most commonly provided on an actual loss sustained basis over a 12-month period, versus an actual stated limit on the policy.

How Does Business Income Insurance Work?


Business Income Insurance is included in a BOP and is designed to replace the income your business would have generated had a covered loss not occurred. This policy will also consider extra expenses that you would not have incurred had there been no loss. This is another plus of Business Income Insurance: you have the ability to endorse your policy to cover the salaries of employees essential to your operation during the period of restoration. This can be beneficial by helping you retain important employees while your business is shut down.


Explaining the Waiting Period


In every BOP policy, for Business Income Insurance, you’ll find a waiting period. This waiting period acts like a deductible and reflects the time period immediately after the loss.  The calculation of the Business Income claim starts after the hours shown in the waiting period. For example, a tree falls on the power line leading to your restaurant business on Friday afternoon.  The Business Income coverage has a 48-hour waiting period, which is stated on the policy. Though your business experiences a loss of income starting when the power goes out, your ability to recoup lost income does not start until 48 hours after the claim occurred.  Any loss of income within that first 48 hours would not be covered.   


The length of the waiting period may vary, but the standard of 72 hours is built into the base BOP form. Business Income coverage is extended for 12-months after the loss. The waiting period and coverage length can be adjusted within a policy. The waiting period options include 0, 12, 24, 48 and 72 hours.  The coverage length can be increased from 12 months up to 18 months.  But not all waiting period options are available for all classes of business and in all geographic locations.


Why is there a Waiting Period?


Waiting periods exist for a number of reasons that serve both the insurer and insured. First of all, the existence of a waiting period reduces smaller claims for an insurance company that may occur during a short window of time. This allows an insurance carrier to focus on bigger claims that have more impact on their customers. A waiting period also serves as an incentive to business owners to create a contingency plan in the event their business is suspended for a small window of time. In addition, the larger the waiting period the less expensive the Business Income coverage will be for the insured.


Should I Adjust My Business Income Coverage Waiting Time?


If your enterprise does the majority of its business during small windows of time, or if you rely heavily on income derived from events or other temporary influxes of business, it might be a good idea to talk to your insurance agent about the possibility of reducing your waiting time to avoid missing out on lost income.


For example, let’s imagine your Business Income Insurance has a 72-hour waiting period. Now let’s imagine that during your busiest weekend of the year - perhaps on Small Business Saturday or when a large event brings people to town - your operation is suspended due to a covered event. If your operation can resume within that 72-hour waiting period window, great! —except you may be left to pay for the loss of income that occurred in that short (but valuable) timeframe, because your coverage did not take effect.


To avoid such a scenario, ask yourself: What is the most amount of income I could lose in 72-hours? If the answer is an amount that seriously hinders your operation, you may want to consider reducing your waiting period before a claim occurs.


The different risks that can threaten your small business can seem daunting at times, but with the right coverage and preparation, you can be ready for just about anything life throws at you. Click below to learn more about the many options when it comes to insurance for small businesses!