Your property may have adequate coverage for fires, windstorms, collapses—even rare events like an airplane strike. What happens to income while you renovate or rebuild?
Some companies spread risk by maintaining two or more manufacturing plants, or by moving operations temporarily to remote offices. How would your business keep operating under those conditions?
Let's assume you lose your main building for six months. Will the income loss be devastating, or manageable? Will ongoing costs drive you toward bankruptcy?
Indirect losses can include production costs, extra operating expenses, and added costs to work with an unfamiliar supplier because your usual source was lost. Consider Loss of Production Income Insurance when evaluating production-related exposures.
Review your sources, suppliers, and infrastructure and determine how those elements contribute to your income stream. Do you absolutely need your physical plant, or could you rebuild or relocate without crippling your cash flow?
Identify critically important resources. Do you have a supplier who would be impossible or very costly to replace? Is your power supply single-source, or are there alternatives?
Each of these issues creates potential extra expense or lost net income. This type of protection is often added to a fire policy or included in a business owner’s package—see Business Income (Business Interruption) Coverage for typical provisions, limits, and common exclusions. If you need help assessing options, talk to your agent.
Take time to prepare an emergency plan for your business. Your insurer’s loss control or risk management service can often help you identify reasonable, cost-effective contingencies.
Start the plan with on-site items: critical machinery, backup equipment, key personnel, and essential records. Then move off campus and map supplier alternatives, backup power sources, and secondary transport routes.
Consider customers and anyone who buys from or supplies your company as part of the continuity picture. If your largest client is out of business for months, your sales could drop sharply unless you have a plan.
Emergency planning, followed by appropriate coverage for the identified exposures, can protect cash flow and help your business survive a major loss.
Frequently Asked Questions
What does income loss coverage typically pay for?
It usually covers lost net income and necessary extra expenses incurred to maintain operations after a covered physical loss.
How long does this coverage last after a loss?
Coverage periods vary by policy and claim circumstances, so review policy definitions and time limits with your insurer.
Should I include supplier and customer impacts in my emergency plan?
Yes; indirect losses from suppliers or customers can be significant and should be part of your continuity planning.
How do I estimate the income I might lose during rebuilding?
Use recent financial records to calculate average net income and add likely extra operating costs to estimate potential loss.