TIME ELEMENT COVERAGE RATING CONSIDERATIONS

(December 2025)

INTRODUCTION

When a covered loss results in direct physical damage to property, it triggers the time element coverage. This coverage is rated based on the building rate at the insured location. The time element coverage is separate from the direct damage coverage and can be provided by the same or a different insurance company.

BUSINESS INCOME RATING

Rating Factors  

The Insurance Services Office (ISO) business income rating factors are located in Rule 50 of the ISO Countrywide form rules for Business Income Coverage. A specific table is shown for the rating factors and is based on three criteria:

o   CP 00 30–Business Income (and Extra Expense) Coverage Form

o   CP 00 32–Business Income (without Extra Expense) Coverage Form

o   Mercantile and Non-Manufacturing

o   Manufacturing and Mining

o   Rental Properties

This factor ensures the insured maintains adequate business income coverage. The business income limit is determined, and then a percentage from 0% to 125% is chosen depending on the recovery period. A lower percentage means quicker recovery and a higher premium, while a higher percentage indicates slower recovery and a lower premium.

NOTE: No-coinsurance is equivalent 0%.

Basic Formula

The basic formula for calculating business income coverage is to add net income, continuing operating expenses, and extra expenses. Once the insured coverage limit is determined, the rating formula begins with the building rate and is adjusted using the business income rate factor table found in the ISO Countrywide manual under Rule 50. 

Options

The coinsurance option can be burdensome. This is why there are three alternatives available:

The first two options—Maximum Period of Indemnity and Monthly Limit of Indemnity—each have unique rating factors, which are available in the ISO Countrywide Manual under Rule 51. These factors are multiplied by the building rate to determine the final business income rate. The insurance limit is then multiplied by this rate to calculate the premium.

The third option – Business Income Agreed Value – calculates a rate based on the basic formula outlined above and then adds a 10% surcharge. The insurance limit is multiplied by the adjusted rate to determine the premium.

Endorsements

Each business income endorsement is handled using its specific rating formula, beginning with ISO Rule 51 – Business Income Options. 

EXTRA EXPENSE RATING

Under ISO Rule 52, three percentage options are offered within the basic extra expense rating rules. Each option involves multiplying a specific factor by the building rate to determine the extra expense rate. The standard options are 100/100/100, 40/80/100, and 35/70/100, with the 40/80/100% being the most frequently used.

If the three options above do not meet the insured's needs, ISO offers additional choices under Rule 53, Extra Expense Options. These allow the named insured to choose a breakdown that best suits their needs. The only conditions are that the first percentage is at least 35%, with each subsequent percentage being equal to or greater than the previous one, and the last percentage equals 100%.

The building rate is multiplied by the extra-expense factor to obtain the extra-expense rate. This rate is then multiplied by the insurance limit per $100 to determine the premium.

LEASEHOLD INTEREST RATING

ISO Rule 65 Leasehold Interest Coverage outlines the guidelines for rating this coverage, which consists of two parts.

Tenants’ Lease Premium Determination

Step 1: The starting point is the gross leasehold interest per month, which is the difference between the property's current rental value and the rent paid by the named insured.

Step 2: Using the inception date, multiply Step 1 by the applicable leasehold interest factor. 

Step 3: Using the expiration date, multiply Step 1by the applicable leasehold interest factor.

Step 4: Add together the outcome of Step 2 and Step 3.

Step 5: Divide the sum of step 4 by 2. The result represents the average insurance limit for the policy term.

Step 6: Multiply the outcome of Step 5 (in hundreds) by the basic 80% coinsurance building rate to determine the premium for tenants' lease coverage.

NOTE: A second method for determining tenants' lease premiums uses an algebraic formula. However, the final result should be similar.

Bonus Payments, Improvements And Betterments, And Prepaid Rent Premium Determination

Step 1: Calculate the average net leasehold interest for the policy term by averaging the product of the monthly leasehold interest and the remaining months at policy inception.

Step 2: Calculate the average net leasehold interest for the policy term by averaging the product of the monthly leasehold interest and the remaining months at policy expiration.

Step 3: Add together Step 1 and Step 2.

Step 4: Multiply the result from Step 3 by the basic 80% coinsurance building rate per hundred of the limit to determine the premium for bonus payments, improvements, betterments, and prepaid rent.