Key Takeaways

  • Business Income coverage pays for LOST NET INCOME plus CONTINUING OPERATING EXPENSES when a covered peril causes a business interruption.
  • The PERIOD OF RESTORATION begins 72 hours after the loss and ends when property SHOULD be repaired with reasonable speed (not actual repair time).
  • EXTRA EXPENSE coverage pays for costs ABOVE NORMAL operating expenses to continue operations during restoration—often purchased with business income coverage.
  • The 50/50 COINSURANCE option is popular—if you insure for at least 50% of annual business income, the coinsurance penalty is waived.
  • Civil Authority coverage (standard) provides up to 4 WEEKS of coverage when government action prohibits access to the premises due to a covered peril at a NEARBY property.
Last updated: December 2025

Business Income Coverage

What is Business Income Coverage?

Business Income coverage (also called Business Interruption insurance) pays for income lost when a covered cause of loss damages covered property and forces the business to suspend operations.

Formula for Business Income:

Business Income = Net Income + Continuing Operating Expenses

Key Concept: Business income coverage does NOT cover property damage—it covers the financial loss from being unable to operate.

Components of Business Income

ComponentDefinitionExamples
Net IncomeProfit that would have been earnedRevenue minus all expenses
Continuing Operating ExpensesFixed costs that continue during shutdownRent, loan payments, salaries
PayrollEmployee wagesOptional—can limit or exclude

Payroll Options

OptionCoverage
Ordinary Payroll IncludedAll employees covered (standard)
Ordinary Payroll ExcludedOnly key employees covered
Ordinary Payroll LimitedRegular payroll for specified number of days

Note: "Ordinary payroll" means rank-and-file employees. Officers, executives, and department managers are NOT ordinary payroll.

Period of Restoration

The Period of Restoration determines how long benefits are paid:

When It Begins

  • 72 hours after the direct physical loss
  • This waiting period eliminates small claims

When It Ends

The EARLIER of:

  1. When property should be repaired/replaced with reasonable speed
  2. When business resumes at NEW location
  3. When business resumes at SAME location

Critical Point: Coverage ends when property SHOULD be repaired—not when it actually IS repaired. Delays by the insured do not extend coverage.

Extra Expense Coverage

Extra Expense covers costs ABOVE normal operating expenses to:

  • Continue operations at the same location
  • Continue operations at a temporary location
  • Minimize the suspension of business
Coverage TypeWhat It Pays
Business IncomeLost profits + continuing expenses
Extra ExpenseEXTRA costs to stay in business
Combined FormBoth coverages in one form

Extra Expense Examples

  • Renting temporary office space
  • Leasing replacement equipment
  • Overtime wages for remaining workers
  • Express shipping to meet customer orders

Coinsurance for Business Income

Business Income coverage has unique coinsurance options:

OptionRequirementBenefit
50%Insure 50% of annual business income6-month coverage
60%Insure 60% of annual business income7-month coverage
70%Insure 70% of annual business income8-month coverage
80%Insure 80% of annual business income9-month coverage
100%Insure 100% of annual business income12-month coverage
125%Insure 125% of annual business income12+ months with buffer

Coinsurance Penalty Formula

If underinsured:

Payment = Loss × (Amount Carried ÷ Amount Required)

Example: If coinsurance is 80% and business income is $1,000,000:

  • Required: $800,000 coverage
  • If only $600,000 carried: 600,000 ÷ 800,000 = 75%
  • Loss of $100,000 pays only $75,000

Additional Coverages

Civil Authority Coverage

  • Covers income loss when government action prohibits access
  • The order must be due to direct physical loss at a nearby property
  • Standard coverage: 4 weeks (sometimes 30 days)
  • Period begins 72 hours after civil authority action

Extended Business Income

  • Continues coverage after property is restored
  • Covers reduced income during ramp-up period
  • Standard: 30 days or until income returns to normal
  • Can extend to 60 days or longer

Dependent Properties Coverage

  • Covers loss from damage to property the insured depends on but doesn't own:
    • Contributing locations (suppliers)
    • Recipient locations (major customers)
    • Manufacturing locations
    • Leader locations (anchor stores)

Key Exclusions

Business Income coverage does NOT cover:

  • Loss from damage to finished stock (inventory sold)
  • Extra expenses covered under business income form
  • Income loss that would not have occurred even without the physical loss
  • Utility service failures originating off premises (unless endorsed)
  • Ordinary payroll if excluded by endorsement
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Business Income Coverage Timeline
Coinsurance Options and Coverage Duration (Months)
Test Your Knowledge

When does the Period of Restoration begin under Business Income coverage?

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Test Your Knowledge

Civil Authority coverage under a Business Income form provides coverage for up to how many weeks?

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B
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D
Test Your Knowledge

Which of the following would be considered "ordinary payroll" that could be excluded from Business Income coverage?

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B
C
D