Property coverage pays to repair the building and replace what was inside it. It does not pay the rent, the payroll, the loan payment, or the profit the business would have earned during the months it was closed. That is what business income coverage is for, and it is the coverage most often left off a policy that otherwise looks complete.

What business income actually pays

It replaces the net profit the business would have earned, plus the normal operating expenses that continue while the doors are shut — rent, loan payments, the salaries you keep paying to hold your crew together. The aim is to leave the business in roughly the financial position it would have been in had the loss never happened.

Extra expense is the other half

Extra expense pays the additional costs of not shutting down: renting temporary space, leasing replacement equipment, paying expedited freight, moving operations across town. Business income covers what you lose by being closed; extra expense covers what you spend to avoid being closed.

For some operations extra expense matters more than business income — a medical practice, a radio station, or a service business whose customers will simply go elsewhere and not come back. Those businesses can sometimes buy extra expense on its own.

The trigger people miss

Business income is not a standalone promise to replace lost revenue. It responds only when there has been direct physical loss or damage to covered property by a covered cause of loss. A slow month is not a claim. Losing your biggest customer is not a claim. A fire that closes your building is.

The period of restoration

Coverage runs for the period of restoration — beginning at the time of loss (many forms apply a 72-hour waiting period first) and ending when the property should be repaired or replaced with reasonable speed and similar quality. Note what that is not: it is not when you actually reopen, and it is not when the money runs out. If repairs drag because of a permit or a custom-equipment lead time, the clock generally keeps running — but if you rebuild slowly for your own reasons, the carrier measures against what reasonable speed would have been.

Extended period of indemnity

Reopening is not the same as recovering. Customers who went elsewhere take time to come back, and revenue climbs slowly. The extended period of indemnity continues coverage after the property is restored — commonly 30, 60, 90 or 180 days — while income returns to normal. Thirty days is the usual default and it is usually not enough.

Extensions worth asking about

  • Civil authority — pays when a government order blocks access to your premises because of damage to a nearby property, not yours. Usually limited to a set number of days and a set distance.
  • Dependent property, sometimes called contingent business income — pays when a supplier or a major customer suffers a loss and your income falls as a result. Worth real thought for a manufacturer with one supplier, or a shop in a mall dependent on an anchor tenant.
  • Utility services interruption — pays when off-premises power, water, or communications fail. Check whether overhead transmission lines are included; many forms exclude them, which is exactly how most outages happen.

How the limit is set, and how it gets cut

The limit is built from projected revenue and continuing expenses for the coverage period, usually on a worksheet. Business income is normally subject to coinsurance, so a limit set below the required percentage reduces every payment proportionally — including partial ones. Some forms replace coinsurance with a monthly limit of indemnity or an agreed value option; both are usually worth having.

The reason it matters

Most businesses that fail to reopen after a fire did not fail because the building was never repaired. They failed because they could not pay rent and payroll for the six months it took, and by the time the doors opened the customers and the staff had gone.

Related: What does actual loss sustained mean? · What is coinsurance?

Educational only — confirm against the actual policy form and endorsements.