Loss of income and business insurance are not similar. They can, however, be applied to the same situation and coverages. A loss of income refers to a temporary or permanent financial setback, resulting from unexpected interruptions in the principal sources of income such as salary and wages, business profits, capital investment, etc. While a business insurance policy covers the risk in case your business is insured against losses, a loss of income covers the gaps between what is expected from the business and the actual losses you suffer.
Businesses often face losses due to the unexpected breakdowns and failures of key persons. It could be due to any number of reasons, from natural calamities like floods, earthquakes and storms to theft, robbery and civil disruptions. Businesses should therefore have a business insurance policy that taking these circumstances into account and protects them from excessive amounts through total loss coverage and/or underinsured/overinsured coverage. Underinsured and overinsured coverage varies significantly in price and terms. An underinsured business insurance policy can often offer the best protection at the lowest premium, but is often not actually required by law in most jurisdictions.
Income coverage is designed to cover the direct loss of the principal value of your business. In other words, everything that your business may create, produce, sell, exchange and operate on has an equivalent value in monetary terms. Because of this, income policies are designed to protect companies in various industries, including travel, finance, technology, real estate, health care and others. While this type of policy usually covers the direct loss of a business (including salaries paid to employees), this can also include indirect losses such as those caused by delays, inaccurate information, errors and omissions, among others. Although a business insurance policy will include some of these indirect losses, they will typically be outlined separately from the direct loss in the policy.
Business income policies do not necessarily offer blanket policies against all losses. Instead, there are several classifications of loss. The classification of loss is further divided into three types: business damage, death and personal injury. If a business does not create or deliver a product, service or idea, then the loss of income it causes is considered business damage. Damage caused by a product, service or idea is referred to as personal injury. Death and personal injury are examples of business damage.
Business insurance policies must also specify the amount of loss for each category. The total loss must be specified in order to determine the extent of loss. This allows businesses to calculate the cost of loss as well as compare it to their annual revenues. Most policies also include a provision that allows the insured party to reimburse the insurer for amounts above and beyond the stated limit of the policy. These amounts are usually limited to a set maximum per year.
Policies can also include a provision allowing an insured person to borrow against the policy in the event that the policyholder experiences a loss due to events beyond its control. This means that losses beyond the policyholder's control can also be covered by the policy. Borrowing from the insurer is only allowed when the risk of repayment is not higher than the value of the premium that has been paid. In addition, in certain industries, insurers may be allowed to deduct costs equal to 30% of the insured product's selling price. This is referred to as an excess payment.
The last type of risk covered by an insurance policy . . . . . . is mortality. Mortality refers to death. This includes natural deaths, suicides, and traffic accidents. An insurer may also include other types of unexpected deaths that are related to work if the business operations in any way. Examples include accidental death, suicide that are not expected in the policy coverage, and death as a result of a malpractice act. Usually, most policies also include provisions that allow survivors of a natural death to collect on a policy.
Income loss covers the loss of potential income from the business itself. This can include income earned by the company from sales of products and services, and payroll. This can also include the revenue gained through rent and royalties paid to the business. If a business' worth is estimated at a loss, it may be possible to recover some or all of this lost income through the proceeds from a court settlement. Recoveries will vary depending on the insurance policy and the particular industry in which the business operates.