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!
