Business income insurance: Do you need it?

Many business owners fail to think about how they’d keep their business afloat if forced to temporarily close. Let’s find out what business income insurance is and why you may decide you need it.

When you jump into building your own company, you dream of having a thriving small business with customers bursting from your seams.

What probably doesn’t immediately enter your mind is your business becoming the victim of fire damage or theft, or high winds damaging your building.

So, it’s a good idea to protect yourself by purchasing business income insurance. Many business owners fail to think about how they’d keep their business afloat if forced to temporarily close. Let’s find out what business income insurance is and why you may decide you need it.

What is business income insurance?

Business income insurance, which is also called business interruption coverage, helps cover lost income and additional expenses when your business gets shut down from a covered loss. What’s a covered loss? A covered loss, also called a covered peril, involves accidents, situations or losses for which an insurance policy will compensate you.

Business income insurance can help you replace lost income resulting from business shutdown because of damage to your property because of things like:

  • Fire damage
  • Theft
  • Water damage

A good way to think of business income insurance is to think of it as income protection insurance. Business income insurance allows you to continue to pay expenses, such as payroll and rent, while your business property is being repaired or replaced. You can easily increase coverage to meet specific risks by choosing from a variety of optional coverages. You can add these coverages as endorsements to your existing business owner’s policy.

Who uses business income insurance?

Any business owner can choose to buy business income insurance.

So, here’s a question. You’d never think twice about opening a business without purchasing property insurance to repair or replace the building if it’s damaged to a covered peril — right? Probably not. But what about:

  • Lost net income (based on financial records)?
  • Mortgage, rent and lease payments?
  • Loan payments?
  • Taxes?
  • Employee payroll?

Scenario For example, let’s say you own a restaurant. Your chef often uses open flame while he works. Should that practice lead to major damage to your restaurant, business income insurance could come to your rescue for:

  • Lost income: This includes your own lost income. 
  • Payroll: The payroll for your servers, chef (yes, even though he accidentally caused the fire), busboys, delivery drivers and more.
  • Rent or mortgage: The payment you pay on your building, whether you rent or own.
  • Loan payments: The payments you make to the bank for your original loan.
  • Taxes: This includes taxes you pay to the state and local government as well as federal tax.
  • Utilities: You may need to pay for the utilities while your business is being repaired. (The workers need electricity to hammer up the drywall.) However, there’s no way you can open the restaurant back up until repairs are finished. That’s what business income insurance — it can help pay for your utility bills.
  • Lost additional profits: Let’s say your restaurant is forced to shut down during December — the busiest time of the year for your restaurant. Your business income insurance can help cover the lost income from holiday parties.
  • Advertising: You may have hired a marketing company to help advertise in your local community. Business income insurance takes care of these advertising costs until you can open back up and make a profit.

Steps to getting business income insurance

The first thing you need to do is calculate your business income. Start by calculating your sales, including the items and services you sell at your business. For example, let’s say you’re an independent college counselor who helps parents make a college plan. Calculate how much you make every time you sell services to students and families. This will help you understand how much coverage you need.

If your business makes or buys goods to sell and maintain inventory, don’t forget to deduct the cost of goods you sell from your revenues. You should do this when you compute your gross profit from your business.

Keep in mind that any income you receive that relates to your business is considered business income. In other words, your business’s sales will constitute most of your business’s income.

To start your complete calculation, follow these steps:

  • Step 1: Calculate your total revenue.
  • Step 2: Subtract your expenses and operating costs from revenue. Business income = revenue – expenses.
  • Step 3: Deduct your tax amount to figure out your net income.
  • Step 4: Get business income insurance from Thimble. Click “Select a Quote” or download the Thimble app, answer three questions, and purchase coverage in less than 60 seconds.

Get business income insurance

Many business owners fail to think about how they’d keep their business afloat if forced to temporarily close. Consider getting business income insurance to protect yourself and your employees, your family and more.

Melissa Brock

Melissa Brock

Melissa Brock is the Money editor at Benzinga and founder of Collegemoneytips.com. She writes about personal finance, higher education and travel.

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

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