Business Income Coverage (BIC) Explained
Paul has invested over 30 years in the insurance industry. He is a graduate of Connecticut College and a former Head Hockey Coach at his Alma Mater, Milton Academy. Paul still actively plays hockey.
Wondering if business income coverage (BIC) is right for you? Or maybe you’re a business owner who has yet to consider this type of protection. Either way, let’s take a few minutes to explore the many benefits of business income insurance and some scenarios in which it is incredibly valuable.
Business income coverage, also known as business interruption insurance, is designed to compensate for lost income due to unexpected events that disrupt regular operations. Instead of focusing on physical damages, this coverage addresses the revenue a business would have earned had the incident not occurred.
To help provide a well-rounded picture of what BIC looks like, consider the following examples and important factors.
Why is Business Income Insurance Important?
While business owners often prioritize insuring their tangible assets, it’s equally important to consider the potential loss of income during unforeseen interruptions. Business income coverage acts as a safety net, ensuring that even during times of crisis, a company’s financial obligations are met and its future remains secure.
In the face of adversity, this coverage could very well be the support your business needs to weather the storm. Business income coverage guarantees:
- Lost Profits: Based on previous financial records, this coverage compensates for the profits that would have been earned during the interruption period.
- Operating Expenses: These are the fixed costs still being incurred at the property even if business operations are halted, such as rent and utilities.
- Temporary Relocation: If a business needs to operate from a temporary location due to damages to the primary location, the extra expenses can be covered.
- Employee Wages: To ensure continuity and retain staff during the downtime, this coverage can help pay your employees.
- Taxes: Even if operations are paused, taxes might still be due. Business income coverage can help ensure you meet tax obligations.
- Loan Payments: If you have business loans, the coverage can help you stay on top of your regular payments.
- Peace of Mind: The assurance that your business has the support it needs during trying times can be a huge stress reliever.
The specifics of each policy vary and should be discussed with an insurance professional. Our team is prepared to answer any questions you may have, and make sure you’re properly covered for your specific situation.
Examples of BIC Coverage
To give you a clear idea of how business income insurance coverage works, here are a few examples that explain specific covered events, as well as the impact, and role of BIC.
The Downtown Deluge
CityFits, a trendy fitness center located downtown, has been the go-to spot for city dwellers to break a sweat. When a severe storm hit the city, unexpected and extensive flooding rendered nearby roads impassable and shut down subway lines.
Although CityFits didn’t experience significant damage from the flood water, a few weeks passed without clients being able to reach CityFits.
Memberships were frozen, and the income stream the gym relied upon dried up. Moreover, group class bookings, personal training sessions, and guest pass sales plummeted to zero.
Even though the fitness center’s property wasn’t directly damaged by the flood, external circumstances heavily disrupted operations. BIC compensates for the lost revenue due to decreased footfall and halted memberships during this period. This ensures that the fitness center can continue paying rent, employee wages, and other operational costs until normalcy returns.
The Supplier Snafu
Java Junction is a quaint coffee shop renowned for serving unique brews from beans sourced from a specific supplier overseas. However, political unrest in the supplier’s country halted exports, including the specialized beans that Java Junction relies on.
As a result, the coffee shop struggled to offer its signature drinks, which form a significant chunk of its sales. With the primary selling point gone, regular customers ventured elsewhere for their caffeine fix.
The coffee shop’s earnings plummeted as the owner searched for alternative suppliers and waited for the political situation to stabilize. Here, the business interruption is not due to any direct damage to Java Junction or its immediate surroundings, but rather an external supply chain issue.
BIC can cover the lost profits during this period, allowing the coffee shop to focus on sourcing alternative suppliers and keeping the business afloat without worrying about meeting its ongoing expenses.
The Bakery Blaze
One unfortunate night, an electrical fault caused a fire at a popular local bakery, damaging a significant portion of the building. While property insurance covers the physical damages, the bakery can’t operate until repairs are completed, which is estimated to take three months.
During those three months, the bakery would have generated substantial income, catering to daily customers, fulfilling cake orders, and more. Without that revenue, meeting fixed costs like rent, utilities, and employee salaries becomes a challenge.
Luckily, the owner added BIC to their coverage, meaning the bakery was compensated for its lost profits during the downtime. They were able to pay staff, cover rent, and even manage monthly loan payments. Without this coverage, the bakery might have faced financial ruin, significant debt, or permanent closure. Instead, once repairs were complete, they reopened without any financial setbacks, ready to serve their delicious treats to the community once again.
What Does BIC Cover?
The following is a side-by-side comparison of what is usually covered, and what isn’t, when it comes to BIC.
What is business income insurance?
Business income coverage is designed to compensate business owners for lost income due to unexpected events that disrupt regular operations. Instead of focusing on physical damages, this coverage addresses the revenue a business would have earned had the incident not occurred.
Is there a waiting period for insurance to become effective?
Waiting periods can be typical with some types of insurance, which is why it’s better to discuss adding BIC to your policy sooner rather than later.
How much does business income insurance cost?
Each company’s insurance needs will result in a price that varies somewhat. The main factor is a company’s gross sales over the most recent year. Commercial business income insurance is typically affordable and comes highly recommended.
How do I get business income insurance coverage?
Count on the experts to set you up for BIC success. The agents at C&S have access to national and local insurance carriers, and are prepared to discuss your comprehensive coverage options.
With a BIC policy of your own, you have the freedom to focus on the aspects of your business that you’re passionate about while we worry about the rest. To further ease your mind, review our free Business Insurance eBook for more coverage options.