Business Income Coverage for Restaurants

One of the most important coverages that a restaurant can have is Business Income coverage. If you have a fire in your kitchen, the resulting damage may cost $25,000 to repair. At the same time, your restaurant may need to be closed for six months to get the repairs completed.  The lost income during that time could be far more than the cost to repair the damage. Business Income (also called Business Interruption) coverage is what protects your business and replaces this lost income while also paying the fixed expenses for the restaurant. There are several important things to know when it comes to Business Income coverage in order to understand how to protects your restaurant.

Most restaurants get their Business Income coverage as a part of their Business Owners Policy or Property Policy.  Coverage is provided on what’s known as an Actual Loss Sustained basis. This means that for a specific period of time (typically one year) the insurance company will replace lost net income up to the actual amount of the loss that you’ve sustained. There is no specific dollar limit. It’s a time based coverage with a limit of a certain number of months.

There are a few additional considerations when you think about your business income coverage and how it affects your company:

• Extended Period of Restoration: If your restaurant is closed for six months after a windstorm, during that time your customers will likely go to other restaurants. The first day you reopen your doors they may not all come rushing back. It will likely be some time after you re-open before sales start to return to normal this is what the Extended Period of Restoration covers. It could be 30 days or longer and in that time the insurance company will also make up the difference between what your sales used to be before you closed and where they are now.  This is essential coverage in making sure you get back on your feet.

• Causes of Loss: Another thing you want to consider is what triggers your Business Income coverage. For most policies, the Causes of Loss that are covered are the same as what would be covered as a loss under your Property insurance so things like fire, wind, and water damage would typically be covered on your Business Income as well. Here are some other things to think about when it comes to covered Causes of Loss for Business Income:
  • Utility Service Interruption: What if your building is fine but, due to damage to nearby electrical equipment, you had no power for 30 days? This can be covered by your business income but it’s not automatically covered by most policies. You need Utility Service Interruption.
  • Equipment Breakdown: If your HVAC goes out and can’t be repaired for 3 weeks, this would likely significantly impact your business.  Adding Equipment Breakdown as a covered Cause of Loss would enable you to file a claim for lost income or extra expense involved in operating during this time.

• Contingent Business Income: This  may also be critical coverage if the success of your restaurant is dependent on a nearby Event Center, Arena, or other facility that provides a regular flow of customers to your restaurant. What if that office building where all the workers come to your restaurant for lunch catches on fire and is closed  for six months? Would your business be negatively impacted? Contingent Business Income coverage can protect you when you rely heavily on another building or facility for your restaurant’s profitability.

• Payroll: If your restaurant was closed for six months what would you do about your employees? Would you lay them all off and so they could collect unemployment? Would you want to make sure that your key employees like your managers and your executive chef are paid during this closure so you retain them? Would you want to be sure everyone was paid? Business Income coverage can provide different layers of protection for employees payroll so you can continue to make the payroll for the employees that you want to keep during the time that the restaurant is closed. This can be customized to your liking. 

As is true with most insurance policies, the devil is in the details when it comes to Business Income coverage. If you want to be sure that your Business Income policy is providing the coverage that you expect for your restaurant, contact Statement Insurance Agency and we’ll make sure that you have the coverage you need at a great price.