Business Income Insurance: Determining Limits
Does your company have adequate business income insurance limits in place? Now is the time to reevaluate your coverage, even if it met your needs a year ago. In addition, factoring in supply chain disruptions and increased inflation rates is critical.
What is Business Income?
Calculating your business income is the first step in determining your business income insurance limits. To do this, isolate your net income before taxes and identify average operating expenses that will continue after a loss (example: payroll).
What is Business Income Insurance?
Business income insurance is a type of business insurance that helps your company replace lost income if it cannot operate due to covered property damage. Covered causes of loss typically include damage caused by fire, wind, or theft. Before settling on a coverage plan, discuss all potential hazards specific to your business with your insurance provider.
Business income insurance can help cover lost income and expenses incurred while your business is closed to repair damages. This type of insurance is generally applied towards the loss sustained when the business is closed due to repairs, unexpected expenses, and payroll/ other operating costs.
Calculating Business Income Insurance Limits
Once you have determined your standard business income, project your 12-month income. Standard Insurance Services Office (ISO) worksheets are available to assist in this process, or you can contact your insurance provider for one-on-one support.
Next, you need to estimate the period of restoration. This step may seem tricky because it is based on a hypothetical scenario. However, a good rule is to base your estimate on a worst-case scenario.
To fully calculate the business income insurance limit that best meets your needs, we highly recommend meeting with your insurance agent. They can evaluate your business needs and offer valuable insight and potential coverage options.
Factors to Consider
Supply Chain Disruption
- Crucial materials may be on backorder, which can overextend the estimated restoration period. A restoration that may have taken a few short months could take upwards of a year, depending on needed supplies.
Availability of Materials
- Material shortages and supply chain disruption go hand in hand. Factoring in the potential that materials may be on backorder is critical.
- You may face additional costs if your business can relocate while the main facility is repaired. Likely this temporary location may not meet industry standards, which could slow production time.
As the premier business insurance agency in Michigan, Allied Insurance Managers is committed to anticipating the needs of our clients and accommodating their preferences. From fast-growing businesses to large enterprises, we have a full suite of insurance programs that can help protect or reduce your company’s risk.