This form of insurance provides loss of income coverage (i.e., “disability income”) for your business by replacing your operating income during a period when damage to the premises or other property prevents income from being earned.
It is by means of your operating income that your business meets its expenses of payroll, light, heat, advertising, telephone service, etc., and from which your profit is derived. If you suffer a business interruption and have to close for several months or operate at a reduced pace because of fire or other perils covered by your earnings insurance, this income will cease or be reduced.
For the purpose of this insurance coverage, “earnings” are defined as the actual loss sustained by the insured as a direct result of business interruption necessitated by damage or destruction of real or personal property. The damage or loss must be caused by the insured perils.
Furthermore, “business income” is defined as the sum of total net profit, payroll expense, taxes, interest, rents, and all other operating expenses earned by the business.
The amount of coverage your earnings insurance provides is established on the basis of either amount of insurance or actual loss sustained for each 30-day period of necessary business interruption caused by damage or loss from covered perils. There are several ways to set up Business Interruption depending upon your particular business: monthly limitations, coinsurance, maximum time period to be paid, etc.
In addition to Earnings insurance, it is also advisable to carry Extra Expense insurance (see separate coverage explanation).