Pardon the Interruption - Lane & Associates
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Pardon the Interruption

Building Fire, Pardon the Interruption

Pardon the Interruption

What is Business Income Insurance?

Business Income Insurance is coverage that protects organizations from a reduction in income when operations are interrupted by damage to property caused by a covered peril.  It is considered a ”time element” coverage and is also referred to as “Business Interruption” or “Loss of Rents” coverage.

How are losses measured?

Business income losses are measured in terms of net income.  Revenues – Expenses = Net Income. The loss is determined by subtracting the amount of net income a firm actually earned in the period of interruption from the amount of net income that the firm could reasonably have expected to earn during the same period.

Example – Joe’s Hardware:

Joe’s hardware suffered a fire loss and was closed for five months.  During the five-month interruption revenue was reduced to zero. Ordinary expenses (payroll, electricity, etc…) were temporarily reduced or eliminated.

Joe’s Hardware                   Expected                              Actual During Period of Restoration

Revenue                               $400,000                             $0

Expenses                             $300,000                             $85,000

Net Income                        $100,000                             ($85,000)

Joe’s business income loss is $100,000 – ($85,000) = $185,000

What is the Monthly Limit of Indemnity Option?

This option is used for most small businesses to suspend the coinsurance condition.

From ISO CP 00 30 10 12 BUSINESS INCOME (and EXTRA EXPENSE) COVERAGE FORM

 

  • Monthly Limit Of Indemnity
    • The Additional Condition, Coinsurance, does not apply to this Coverage Form at the described premises to which this Optional Coverage applies.
  • The most we will pay for loss of Business Income in each period of 30 consecutive days after the beginning of the “period of restoration” is:
    • The Limit of Insurance, multiplied by
    • The fraction shown in the Declarations for this Optional Coverage.

 

With this option the insurer will limit the amount payable for each period of thirty consecutive days for which a business income loss is sustained.  It is typically expressed as 1/3, 1/4 or 1/6. The selected fraction will be multiplied by the selected limit of insurance. The result is the most the insurer will pay in a 30 day period.  Contrary to popular belief it does not limit the time period of coverage only how much is paid in each 30 day period.

Here is another example for Joe’s hardware showing what would have occurred had he selected Business Income limits of $150,000 with a 1/3 Monthly Limit of Indemnity option:

The most his policy will pay is $50,000 in any one 30 day period.  $150,000 (Limit of Insurance ) X 1/3 (Monthly Limit of Indemnity) = $50,000. In this example it takes Joe five months to restore his operation after the fire.

Month                  Bus. Income Loss           Bus. Income Paid

1                              $60,000                                $50,000 ($60,000 is greater than the Monthly Limit of $50,000)

2                              $30,000                                $30,000

3                              $40,000                                $40,000

4                              $25,000                                $25,000

5                              $35,000                                $ 5,000 (Limit of Insurance is $150,000 so only $5,000 is paid)

Total                     $185,000                             $150,000 (Limit of Insurance.)

What is Business Income with Extra Expense?

The Business Income (and Extra Expense) Coverage form CP 00 30 provides coverage for business income losses as well as the extra expenses incurred to reduce business income loss.  An example would be the expense associated with renting another location or temporary equipment to continue operations. It should be listed on the ACORD 140 as BI w/EE” .  It is recommended that insureds select Business Income with Extra Expense over Business Income without Extra Expense CP 00 32.

What is the best way to show the monthly limit on an ACORD 140?

Lane & Associates can protect your clients with Business Income Insurance and Business Income Insurance with Extra Expense coverage. Contact us today to let our knowledgeable staff help get you started.

Karen Bivona is a Lane & Associates underwriter! She underwrites, quotes and services general liability accounts for contractor risks, including our online Artisan Contractor General Liability Program. She has worked with the company for more than 35 years.

Jonathan Whitaker is a Lane & Associates underwriter. One of his favorite parts about his job is the relationships and friendships he's able to extend beyond work. He enjoys golf, traveling, Saints football and spending time with his family.

Marie Hohensee is Lane & Associates Vice President of Commercial Underwriting and assists the commercial underwriters in making sound and profitable decisions in placing business for our customers, as well as underwriting her own book of business. She’s originally from California but has called Louisiana her home for more than 25 years and has been working in insurance for more than 30 years!

Brandy Lane is an Underwriting Assistant at Lane & Associates. Brandy's favorite part of her job is helping the underwriters so we can promptly get things to our agents! Brandy's hobbies include spending time with her friends, trying new restaurants and seeing live music.

Scott Landry is the president of Lane & Associates, an advocate of continuing education and has his CPCU, ASLI, AIS, AU, and AIDA. Scott is active in the insurance community, serving on Commissioner Donelon's Surplus Lines Insurance Advisory Council, The Louisiana Property and Casualty Insurance Commission and the Louisiana Surplus Lines Association. Some of Scott's hobbies include gardening and exercising.

Casey Lane is a Lane & Associates underwriter. His favorite part of his job is building relationships with the agents he serves. When he's not at Lane, Casey enjoys Saint's football, music and watching his four children's sporting events.

Chris Weego is a Lane & Associates underwriter. His favorite thing about working at Lane are his coworkers and the amazing agents he gets to work with. When he's not working, Chris enjoys playing golf, watching his kids play sports and cheering on the Chicago Cubs!

Don Lundy is a Lane & Associates Texas underwriter. Recently, he completed his CPCU designation after 15 years of off-and-on classes. When he's not working, Don enjoys photography, Star Wars, the Atlanta Braves and watching his son bowl.