EXTENDED BUSINESS
INCOME ADDITIONAL COVERAGE AND EXTENDED PERIOD OF INDEMNITY OPTIONAL COVERAGE
(December 2025)
The longer a business
remains unable to serve its customers, the more time it takes to recover
existing clients or attract new ones. Insurance Services Office (ISO) forms CP
00 30–Business Income (And Extra Expense) and CP 00 32–Business Income (Without
Extra Expense) only offer coverage that ends when the restoration period ends.
However, the insured may still require income protection beyond this period.
The Additional Coverage – Extended
Business Income provides an extra 60 days of coverage beyond the restoration
period. This coverage begins only after the restoration period is complete. If
repairs are delayed, this coverage does not apply.
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Example: Mitch’s Furniture could have been rebuilt in four
months, but an ordinance requiring wall relocations and access fixes extended
the project to five months. His business income coverage only lasts four
months, so Mitch must cover the extra month of lost income himself. He
resumes operations after five months, triggering his extended business income
coverage, which lasts up to 60 days, until the insurance limit for this loss
is reached, or until his business is restored to its pre-loss condition,
whichever comes first. |
Additionally, there is no coverage for
any reduction in business income resulting from a negative business climate in
the insured’s local area related to the covered cause of loss.
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Example: Mitch’s Furniture opens for business, but the
apartments and homes in his area are not yet rebuilt. Because there are no
customers, the business does not resume to its former level. This type of
business income reduction is not covered under the extended business income. |
If a loss involves rental value,
coverage begins when the premises are deemed available for occupancy. It ends
either when the rental income lost is recovered or after 60 days, whichever
comes first. Again, there is no coverage for any decrease in business income
due to a negative local business climate related to the insured event.
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Example: Maple Development owns a multi-occupancy building
in downtown Smithville. When a gas line explodes, it damages four buildings,
including Maple’s, and wrecks the street and sidewalks. After repairs, Maple
Development is prepared for tenants in three weeks. However, the former
tenants do not want to return, and new tenants are hesitant due to
Smithville's fiscal crisis, which has delayed sidewalk and street repairs.
There is no coverage for this kind of extended business income loss. |
Sometimes, the named
insured needs more than 60 days of extended business income coverage. They can
achieve this by purchasing the Extended Period of Indemnity Optional Coverage,
included in the CP 00 30–Business Income (and Extra Expense) Coverage Form and
CP 00 32–Business Income (without Extra Expense) Coverage Form. The only change
is the number of days specified in the Extended Period of Indemnity on the
declarations, which replaces the 60 days listed under Additional
Coverage–Extended Business Income.
The Extended Period of
Indemnity Optional Coverage is available as long as neither of the following
conditions applies:
·
The
Maximum Period of Indemnity Optional Coverage is chosen.
·
Coverage
is issued without coinsurance, which means none of the optional valuation
methods apply because the coinsurance percentage is zero.
The Extended Period Of Indemnity
Optional Coverage replaces the 60-day limitation in Additional
Coverage–Extended Business Income with options of 90, 120, 150, 180, 270, 365,
450, 540, 630, or 730 days. These are the only choices available.
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Example: Mandy owns and operates a
breakfast-and-lunch restaurant in a downtown office building. She has a large
customer base, but she knows they will go elsewhere if she is out of business
for more than a few days. She purchases the 120-day extended indemnity period
to keep her business income after a loss. A serious fire forces her to close
her business for three months. Mandy's business income limit is $200,000. When
she opens again for business, her insurance company pays as follows: |
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|
Time period |
Expected income |
Actual income |
Amount of loss |
Loss payment |
|
01/01–03/31 |
$150,000 |
None |
$150,000 |
$150,000 |
|
04/01–04/30 |
$50,000 |
$35,000 |
$15,000 |
$15,000 |
|
05/01–05/31 |
$50,000 |
$55,000 |
None |
None |
|
06/01–06/30 |
$50,000 |
$55,000 |
None |
None |
|
07/01–07/31 |
$50,000 |
$45,000 |
$5,000 |
None |
|
Mandy will receive payments for either 120 days or
until the insurance limit is exhausted, whichever comes first. Since Mandy's
operations returned to their pre-loss level in June, no further payments have
been made, even though 30 days and $35,000 of the limit remain available. |
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ISO rules assign a
specific multiplier for each optional number of days. The basic business income
coverage formula is adjusted by a factor that matches the selected days. These
surcharge factors range from 1.05 for a 90-day period to 1.55 for 730 days. Further
details on the rules and factors are available in the ISO Commercial Lines
Manual.
Related Article: 131.5-2, Time Element Coverage
Rating Considerations