🏠 Module 3-The Complete Guide to Bus Inc Flashcards
The Complete Guide to Business Income
BI
Business Income Coverage
Coverage that protects the existence of a business for post-loss recovery that includes:
- Net operating profit (or loss)
- Normal continuing operating expenses (including ordinary payroll)
EE
Extra Expense Coverage
Additional expenses incurred to:
- Resume operations as quickly as possible
- Prevent further loss
Can be incurred either immediately after loss or during the restoration period
DOL
Date of Loss
- Date when loss occurs and coverage starts
NOTE!
BEWARE of time period deductible (typically 24-72 hours)
POR
Period of Restoration
Length of time to repair/restore the property
NI
Net Income
PML
Probable Maximum Loss
- “Worst-case scenario”
- Can be determined using a PML chart
ALS
Actual Loss Sustained
DOR
Date of Restoration
Actual date that repair/replacement is completed and payment ceases
Three steps to develop proper BI coverage
- Establish annual BI/EE exposure
- Determine POR based on PML for all property (building, stock, machinery)
- Match limit and timeframe with best coverage form
Seven Factors When Considering POR
- Length of time to rebuild
- Length of time to replenish stock
- Length of time to replace machinery
- Existence of peak seasons
- Delays due to severe weather
- Possibility of relocation
- Length of time to regain customer base
Four Main Types of BI Coverage
- Actual Loss Sustained
- Coinsurance
- Maximum Period of Indemnity
- Monthly Limit of Indemnity
Actual Loss Sustained
- No dollar limit
- Limited by time (typically 12 months)
Coinsurance
- Based on BI worksheet
- Can go as low as 50% and as high as 125%
- Not limited by time
- Should always add “Agreed Value Endorsement” (which requires BI worksheet)
Maximum Period of Indemnity
- Pays BI/EE loss for stated period of time (typically 30 days)
- Pays until business recovers or time limit expires, whichever comes first
Monthly Limit of Indemnity
- Limited by time
- Period chosen at inception, typically 1/3, 1/4, 1/6
- Total limit divided by period and paid out over that number of months