What Type of Income Replacement Insurance Does Your Business Need?

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Let’s explore what business interruption insurance covers, the different types of income replacement protection available, and how to secure affordable coverage in Canada.

What Is Business Interruption Insurance?

Business Interruption Insurance compensates you for lost net income following a covered property loss, such as fire, water damage, theft, or vandalism. To qualify, your business must carry commercial property insurance, since interruption coverage is often added as an extension.

The policy helps small business owners replace lost income and pay ongoing expenses when they can’t operate as usual. It also reimburses additional costs needed to keep your business running while repairs are underway.

For example, covered incidents can include:

• Fire or smoke damage
• Burst pipes or water damage
• Theft and vandalism
• Storms, wind, and other natural disasters that damage your business property

If you submit a claim for business interruption and your insurer accepts it, you can expect a typical policy to cover a broad range of your operating expenses, including:

• Lost income and fixed operating costs, like monthly rent payments and utility bills for your commercial property
• Temporary relocation costs
• Employee payroll costs
• Taxes and loan payments

4 Types of Income Replacement Insurance

There are four primary income replacement approaches a business owner can select when purchasing business interruption insurance. They are:

1. Business Income Coverage

This coverage reimburses business owners for lost income caused by a covered event. It usually includes an 80% co-insurance clause, meaning you must insure at least 80% of your projected income to receive full compensation. Payments continue until your business is able to reopen or reasonably could have been able to reopen.

2. Gross Earnings Coverage

Gross earnings coverage compensates you for lost gross earnings due to direct property damage. It includes profits, ongoing expenses, and payroll. This option is ideal for businesses with significant operating costs, as it covers both profit and fixed expenses. Co-insurance typically ranges from 50% to 80%.

3. Profits Insurance

Profits insurance provides extended income protection even after your business reopens – especially useful if customer traffic or sales take time to recover. Coverage lasts until income returns to pre-loss levels or up to 12 months, whichever comes first. A 100% co-insurance clause applies.

4. Extra Expense Insurance

This policy covers additional costs needed to continue operating after a major loss. For example, renting a temporary location or expediting repairs. However, it does not replace lost income, which is why many small businesses combine it with an income replacement policy for full protection.

What Is Not Covered By Business Interruption Insurance?

It’s equally important to understand what business interruption insurance doesn’t cover. Common exclusions include:

• Acts of terrorism
• Intentional or criminal acts
• Undocumented or unreported income on your financial records
• Pandemics, viruses, or infectious diseases (e.g., COVID-19)
• Floods, earthquakes, or pollution damage (unless it’s included in a policy). Commercial property insurance may cover these events. Talk to a Zensurance broker if you have questions.

How to Get Low-Cost Business Interruption Insurance Online Fast

Zensurance is Canada’s leading online small business insurance brokerage helping hundreds of thousands of small business owners protect their finances and assets with comprehensive, low-cost coverage, including business interruption insurance.

Getting covered is fast and easy.

Complete our online application in less than five minutes for a free quote.

Let our team of insurance experts find and tailor the policy you need from one of more than 50 insurers in our partner network, so you can relax and focus on growing your bottom line, not worrying about how you’ll make ends meet if something goes wrong.