How To Calculate Business Income For Insurance

Business income insurance, also known as business interruption coverage, helps cover lost income and extra expenses when a covered loss forces your business to shut down.

It covers:

  • Taxes: Covers tax payments when your business has to temporarily close.
  • Payroll: Helps with employee compensation during the shutdown.
  • Utilities: Assists in paying utility bills while your business is being repaired.
  • Lost profits: Covers lost revenue during the shutdown.
  • Advertising: Helps with advertising costs if your business is temporarily closed.
  • Mortgages or rent: Covers rent or mortgage payments when your location is damaged.

Calculating your business income is crucial for your business owner’s policy (BOP) to protect against financial losses from covered events.

Calculating business income for insurance
To determine business income for insurance, calculate total revenue, subtract expenses for earnings before tax, and then deduct taxes to get net income or profit: Photo source (Reddit)

Instructions to Calculate Business Income for Insurance

Determine your business’s initial income by reporting gross receipts or sales, which encompass all products and services sold by your business.

For instance, if you sell computer equipment, each product sold contributes to this starting calculation.

If your business produces or purchases goods for sale and maintains a portfolio, subtract the inventory sold from your revenues when computing your gross profit.

Keep in mind that any income received related to your business is considered business income.

Typically, the owner’s share of the business’s earnings constitutes the majority of the overall income.

Understanding Business Income and Managing Expenditure

To initiate your calculation, follow these steps:

  1. Calculate your total revenue.
  2. Subtract your business’s expenses and operating costs from the total revenue. This yields your business’s earnings before deductions.
  3. Deduct taxes from this amount to determine your business’s net income. Your net income represents your business income.

The formula for business income is: Business income = revenue – expenses

What Will My Business Income Insurance Cost?

Utilizing Insurance Services Office (ISO) worksheets can be valuable when determining business income.

These worksheets aid in:

  1. Calculating the income your business generated in the previous 12-month period.
  2. Estimating earnings for the upcoming 12-month period.

To make projections, adjust the 12-month historical figures to account for expected changes in the coming year.

For instance, if you anticipate a 10 percent increase in retail sales, adjust your revenue projection accordingly.

It’s essential to be precise as Business Income or Business Interruption coverage can be misunderstood among all property coverages.

Once you’ve completed your 12-month income projection, it’s crucial to estimate the period of restoration to safeguard your business.

These estimates should be based on a worst-case scenario to ensure adequate protection for your store.

A precise business income policy can be crafted based on your customized 12-month projection.

However, it is vital to seek assistance from a skilled insurance agent in Boston to accurately calculate this projection.

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