Loss of Income Insurance: Protecting Yourself When Things Go Wrong

When you’re self-employed or own a small business, protecting your income is crucial. Unfortunately, accidents and mishaps can happen at any time, and without proper insurance, you could find yourself unable to work and struggling financially. That’s where loss of income insurance comes in.

What is Loss of Income Insurance?

Loss of income insurance, also known as business interruption insurance, is a type of insurance that helps replace lost income when your business is unable to operate due to unexpected events such as fire, theft, or natural disasters. This insurance also covers expenses such as rent, utilities, and employee salaries during the time your business is closed.

Many policies also offer coverage for lost income due to other events such as power outages, supply chain disruptions, and civil or military orders that prevent you from operating your business.

Why Do You Need Loss of Income Insurance?

As a small business owner, your income is tied directly to your ability to operate your business. If a disaster or unexpected event occurs that causes your business to close, you could find yourself without income for a significant period of time. Loss of income insurance helps protect you from this financial risk by providing a financial safety net while you get your business back up and running.

Without this insurance, you could be forced to dip into your personal savings or take out loans to cover your living expenses and business expenses while you’re unable to operate your business. This can lead to financial strain and even bankruptcy in extreme cases.

How Does Loss of Income Insurance Work?

If you have loss of income insurance, you can file a claim with your insurance provider when your business experiences a covered event that prevents you from operating. Your insurance provider will then assess the damage and calculate the amount of lost income and expenses you’re eligible to claim.

Most policies have a waiting period before you can file a claim, usually between 24 and 48 hours. This waiting period allows for time to assess the damage and determine if your business can still operate in a limited capacity.

Once your claim is approved, you’ll receive payments to cover your lost income and expenses for a specified period of time, usually up to 12 months. The amount of coverage you receive depends on the policy you choose and the amount of coverage you purchase.

What Does Loss of Income Insurance Cover?

Loss of income insurance covers a variety of expenses related to lost income due to unexpected events. Some of the expenses that may be covered include:

Expenses Covered by Loss of Income Insurance
Employee salaries and benefits
Utilities (electricity, gas, water, etc.)
Rent or mortgage payments
Bills for services (phone, internet, etc.)
Lease or loan payments for business equipment or vehicles
Taxes

It’s important to note that loss of income insurance does not cover damage to your property or equipment. For that, you’ll need separate property insurance.

How to Choose the Right Loss of Income Insurance Policy

Choosing the right loss of income insurance policy requires careful consideration of your business’s unique needs and risks. Here are some factors to keep in mind when selecting a policy:

Policy Limits

Policies have a maximum amount of coverage that they’ll provide. Make sure you choose a policy with adequate limits to cover your business’s expenses and lost income.

Deductibles

Like other types of insurance, loss of income insurance policies have deductibles that you’ll need to pay before your coverage kicks in. Make sure you choose a deductible that you can comfortably afford.

Waiting Period

As mentioned earlier, most policies have a waiting period before you can file a claim. Make sure you choose a policy with a waiting period that works for your business’s needs.

Exclusions

Be sure to read the policy’s exclusions to understand what events or circumstances are not covered by the policy. Some policies may exclude certain types of natural disasters, for example.

Cost

Of course, cost is also an important factor when choosing a policy. Make sure you get multiple quotes from different insurance providers to compare costs and ensure you’re getting the best deal.

FAQ

What events are typically covered by loss of income insurance?

Loss of income insurance typically covers events such as fire, theft, natural disasters (such as hurricanes or earthquakes), power outages, and supply chain disruptions.

How is the amount of lost income and expenses determined?

The amount of lost income and expenses you’re eligible to claim is typically determined by your insurance provider after assessing the damage to your business and reviewing your financial records. You’ll need to provide documentation of your expenses and income in order to file a claim.

Is loss of income insurance required by law?

No, loss of income insurance is not required by law, but it’s highly recommended for small business owners and self-employed individuals.

Can I purchase loss of income insurance as a standalone policy?

Yes, you can purchase loss of income insurance as a standalone policy or as part of a larger business insurance package.

How much does loss of income insurance cost?

The cost of loss of income insurance varies depending on the coverage limits you choose, your deductible, and the type of business you operate. It’s important to get multiple quotes from different insurance providers to compare costs and ensure you’re getting the best deal.

How long does loss of income insurance coverage last?

Loss of income insurance coverage typically lasts for a specified period of time, usually up to 12 months. The length of coverage can vary depending on the policy you choose and the amount of coverage you purchase.

Overall, loss of income insurance is an essential tool for small business owners and self-employed individuals who want to protect their income and financial stability. By choosing the right policy and understanding the coverage it provides, you can rest easy knowing you’re prepared for unexpected events that could threaten your livelihood.