Business Income (Time Element)

This coverage reimburses a business owner for lost profits and fixed expenses during the time that a business is closed. It applies while the premises are being restored because of damage from an event such as a fire. Business income insurance may also cover financial losses that occur if civil authorities limit customer access to your neighborhood or business after a disaster. We strongly recommend that all businesses acquire this coverage.

Want to go deeper?

TIME ELEMENT COVERAGES

Time Element forms provide coverage for the intangible economic losses that occur following a direct damage loss to tangible property. These are future-looking forms and coverage is based on the loss of anticipated economic benefits.

Time Element Coverage—Business Income with Extra Expense

Business income with extra expense provides coverage for the loss of income a business suffers after direct damage of covered property. In addition, extra expenses that the insured incurs to remain in operation above and beyond the amount necessary to reduce the business income are also covered.

Automotive operations will want this coverage since they will need to remain in operation after physical damage.

(Refer to ACORD 140) (Refer to PF&M Section 131.4-2)

Time Element Coverage—Business Income without Extra Expense

Business income with extra expense provides coverage for the loss of income a business suffers after direct damage of covered property. While there is coverage for expenses that are necessary to reduce the business income loss, there is no coverage for extra expenses incurred to just keep functioning.

Coverage can be purchased on a coinsurance basis or on a monthly limit of indemnity based on the needs of the risk.

Automotive operations may want to consider this option if they do not anticipate the need for any extra expense in order to remain in operation.

(Refer to ACORD 140) (Refer to PF&M Section 131.4-2)

Time Element Coverage—Business Income – Coinsurance

Coinsurance is a technique to encourage proper insurance to value. The higher the percentage chosen, the lower the rate applicable. The lowest rate is at 125 percent. The unusual percentage is used to encourage the insured to cover not just the business income but also extra expense that must be incurred beyond the business income loss. Business income coinsurance is based on time so the insured should base limits on the consecutive months that generate the highest income. As an example, retailers should consider using winter months not the summer months. Exterior contractors would use the summer months rather than the winter.

Time Element Coverage—Business Income – Alternatives to Coinsurance

Agreed value—suspends coinsurance but requires the insured submit annual signed statements showing the prior 12 months business income and the anticipated 12 months business income. The insured must then carry a limit of at least 50 percent of the anticipated 12 months business income.

(Refer to PF&M Section 131.6-4)

Maximum period of indemnity—suspends the coinsurance and will pay the business income for the 120 days following the date of loss. Coverage ceases after the 120th day even if the limits have not been exhausted.

(Refer to PF&M Section 131.6-10)

Monthly limit of indemnity—suspends the coinsurance and will pay the business income for 3, 4 or 6 months depending on the selection made. Each month 1/3, 1/4 or 1/6 of the business limit of liability may be available to pay for the business income loss of that month. If the percentage is not used the one month, it is not available to pay the next month. As an example, if an insured chose the 1/3 option with a $60,000 limit there would be $20,000 coverage available each month. If there is a loss and the first month the loss was $10,000, it would be paid, the next month the loss was $20,000 and it would be paid, the third month the loss was $30,000—only $20,000 would be paid. There would be no coverage available for the remaining time.

(Refer to PF&M 131.6-5)

Premium adjustment—suspends the coinsurance while making sure the insured only pays for the coverage purchased. It is similar to a personal property reporting option except that the full premium is paid up front and the insured is only given a refund, never an additional premium. The insured submits a statement of estimated business income at the beginning of the time period, chooses a coinsurance percentage and limit, and pays the appropriate premium. At the end of the period, the insured submits the statement of actual business income and the premium is recalculated and a return premium given.

(Refer to PF&M 131.6-7)

Time Element Coverage—Business Income from Dependent Properties

Covers loss sustained at scheduled dependent properties that causes suspension of operations at the insured property. Dependent properties could be a supplier of the insured or a customer of the insured or even the lead store at a shopping center that draws customers to the insured. Coverage is provided with an endorsement to the business income policy. It is not required that business income be purchased on the insured’s premises in order to purchase business income from dependent properties.

(Refer to ACORD 140) (Refer to PF&M Section 131.6-3)

Time Element Coverage—Extra Expense Coverage Form

Coverage is provided to pay for all monies that must be expended to get an insured back in business in the fastest way possible without regard to income to be generated by the return to business. These would include, but not be limited to, transportation fees when using next -day service rather than normal shipping schedules, any surcharge to put a rush on a purchase order, special set- up fees that may be charged for a manufacturing order, etc. When money can be used to re-open an operation (provided it is legal), then the expense will be paid under this form. The coverage is provided using the ISO standard Extra Expense Coverage Form.

This coverage should be considered if there would never be business income, but there could be considerable extra expense to insure that the operation is able to open – under any circumstance.

(Use ACORD 140) (Refer to PF&M Sections 131.4-2 and 131.6-1)

Time Element Coverage—Leasehold Interest

Covers the tenant who has a more favorable long-term lease than the prevailing rate in the area. The form pays for the difference between the prevailing rents levels and the current rent being paid following the cancellation of the lease due to direct damage to the building by a covered cause of loss. It covers a variety of upfront amortized costs in addition to the rental or lease difference. The coverage is a decreasing coverage based on the length of the lease.

The coverage is provided in a standard ISO property form. The insured can choose basic, broad or special cause of loss. It is important to review the insured’s lease agreement to determine what would constitute a loss that would break the lease and therefore trigger the coverage. The lease should then dictate the cause of loss purchased.

Automotive operations with long-term leases should consider this coverage.

(Refer to ACORD 140) (Refer to PF&M Section 131.4-2)

Time Element Coverage—Ordinance or Law Increased Period of Restoration

There is no coverage in the Business Income Form for any delay due to ordinance or law considerations. This endorsement will extend to cover the additional time to rebuild and meet the current building codes. This includes the time to demolish the undamaged portion of the building. Coverage is provided using the ISO Time Element Endorsement Form to provide this coverage. Other carriers may provide the coverage through extensions.

If it is determined that ordinance or law coverage for the building and business personal property is needed, then this form must be purchased because of the increase of time needed to bring the building to code.

(Refer to ACORD 140) (Refer to PF&M Section 131.4-3)

Time Element Coverage—Utility Services

The standard ISO cause of loss forms exclude coverage for utility service disruption. Since disruption of electricity, water and communication can stop certain businesses from operating, this cause of loss is necessary. Coverage may include only the off-site location or may be expanded to include the power or communication lines.

Automotive operations cannot operate without utilities. This coverage should be evaluated and the exposure to loss of utilities considered.

(Refer to ACORD 140) (Refer to PF&M Section 131.6-6)