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Home > Blog > How to Calculate Business Income Insurance
FRIDAY, MAY 8, 2020

How to Calculate Business Income Insurance

In my last post, I gave a high-level overview of what business income insurance is and why you, as a business owner, need this coverage. While Covid-19 has led to a lot of questions surrounding this coverage, the fact remains this is the only insurance coverage that will cover your risk of lost profit due to an insured loss affecting your ability to conduct business in a normal fashion.

To assist you in evaluating how much is truly at risk, I have included the worksheet our agency uses to help clients understand what is at risk and how much insurance to carry. Please use the below as a resource to better understand your business income exposure.

BUSINESS INCOME WORKSHEET

Monthly mortgage payment or rent (1) $______________

Monthly real estate tax expense (annual tax/12) $______________

Monthly vehicle loan or lease payments $______________

Monthly business loan payments $______________

Monthly insurance costs (annual cost/12) $______________

Monthly legal and accounting fees (annual costs/12) $______________

Monthly payroll and fees (annual costs/12) $______________

Monthly payroll including benefits (2) $______________

Monthly utility expenses (3) $______________

Monthly profit $______________

TOTAL $______________

 

Number of months needed to move to a permanent new location or to rebuild your current location. Three months should be considered a minimum, six months is closer

to normal, and twelve months would be unusual.                              ______MONTHS

 

Limit of liability needed (TOTAL $ x NUMBER OF MONTHS)     $______________

 

I.                    It’s usually best to show your full monthly rental expense on this line. Most leases permit you to stop paying rent only if the building is totally destroyed or if the period of untenantability is six months or greater.

II.                 On this line, include owner’s salaries if the owner normally is paid a salary.

III.              Although water, heat, electricity, gas, telephone and trash hauling would be reduced or eliminated during a period when you are closed, you would still have some minimum expenses in these areas. A good estimate would be to show one-half of your normal expenses on this line.

EXTRA EXPENSES WORKSHEET

Estimate the monthly cost of operating your day care center from a temporary location while your building is closed for repairs.

Monthly rent – temporary premises                                                       $_____________

Monthly utilities – temporary premises                                                  $_____________

Monthly – furniture and equipment                                                        $_____________

Monthly extra transportation expenses                                                  $_____________

Monthly extra advertising costs                                                              $_____________

Monthly maintenance – temporary premises                                         $_____________

Monthly unforeseen extra expenses                                                       $_____________

 TOTAL $_____________

Number of months needed to move to a permanent new location or to rebuild your current location. Three months should be considered a minimum, six months is closer to normal, and twelve months would be unusual.                                                                                                                                                                                                                                                                                                            _____MONTHS

Limit of liability needed (TOTAL $ x NUMBER OF MONTHS)           $_____________

Written by Robbie Korth

If you have any questions, please feel free to contact Robbie Korth at rkorth@parkassociates.com.

Posted 11:49 AM

Tags: how to calculate business income property insurance
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