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Determining Business Income Coverage on a Restaurant Insurance Policy

business income coverage

When the worst happens you’ll be glad you have Business Income Coverage…

A well-built restaurant insurance policy contains many different coverages. An often overlooked yet vitally important coverage that should be on every restaurant insurance policy is business income coverage.

Business income coverage is for indirect losses that suspend business operations when covered property sustains direct damage, meaning a covered loss to the physical property of your restaurant.

Here’s a common example of a business income coverage claim:

There is a fire in your restaurant’s kitchen that was caused by grill grease. Fire is a covered peril on an insurance policy.  How is a restaurant supposed to maintain its operating revenue when it does not have a kitchen in which to produce food?

Business income coverage provides financial reimbursement to the restaurant after a loss and during the period in which the damaged property is being restored. This allows the restaurant to continue to pay its employees and operating expenses between the time of loss and when operations can resume.

One important term you need to understand before we dive deeper into business income coverage is the period of restoration. The period of restoration begins 72 hours after a covered direct loss interrupts operations. The period of restoration ends on the earlier of the date the property should be repaired, rebuilt or replaced with similar quality of material or the date business operations resume at the new restaurant location.

For the first three days after a loss, the insurance company is not going to provide business income coverage.

Determining the amount of business income coverage

Business income is the net, pretax income or loss that would have been earned plus continuing normal operating expenses incurred if there was no direct damage loss to the covered property.  It includes payroll.

The insurance company pays the actual loss of business income that you sustain due to operations that must be suspended during the period of restoration. The suspension and operations at your restaurant must be because of direct physical damage or loss to the covered property at your restaurant location listed on the policy.

Common business income coverage exclusions

  • Law or Ordinance: an increase in the cost of a loss because of enforcing municipal state or federal ordinances is excluded.
  • Earth Movement: any form of earth movement is excluded including earthquake, mudslide, mud flow or volcanic rupture.
  • Government Action: coverage does not apply if the government takes over your property for any reason and damages it.
  • Nuclear Hazard: there is no coverage for loss or damage from nuclear radiation, radioactivity or any similar event.
  • Utility Services: coverage not apply if utility service fails due to a problem at a location away from your restaurant location
  • War Military Action: is excluded.
  • Water Damage: of any kind is excluded.
  • Mold and Mildew: mold, mildew and fungus is excluded unless it is caused as the result of a fire.

The Insurance Take-Away

Many restaurant owners neglect business income coverage on their restaurant insurance policies. However, business income coverage can play a major role in ensuring that your restaurant is restored to its full capacity after a loss. Business income coverage can help you retain the quality vendors and employees that helped you grow your business in the first place.

At The Murray Group, we specialize in providing quality restaurant insurance programs at the most competitive rates in the marketplace. If you would like to discuss your restaurant insurance with us or if you would like to receive a quote for your restaurant insurance policy, please give us a call at 518-777-7777 or you can click here to begin the process by email.

Thank you and good luck.

Ryan Hanley, CIC
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