ISO BUSINESS INCOME (AND EXTRA EXPENSE) COVERAGE FORM SAMPLE INSURANCE PROPOSAL LANGUAGE

(December 2025)

REPRINT PERMISSION

PF&M subscribers are permitted to reprint the following sample insurance proposal language for their commercial insurance presentations in any manual or electronic format. Any other use requires permission from The Rough Notes Company, Inc.

PROPOSAL DISCLAIMER

The following paragraph or similar language must be included in all insurance proposals:

Disclaimer: The information provided in this sample proposal language does not represent the exact contract terms of the policy. Consult the actual policy for exact definitions, conditions, coverages, exclusions, and limitations. Coverage may vary based on the company's underwriting guidelines and practices.

TIPS FOR USING THIS PROPOSAL LANGUAGE

This proposal language is not meant to be a comprehensive insurance proposal. However, it should include the following client-specific sections:

The goal of an insurance proposal is to summarize potential coverages rather than repeat the actual policy. The sections highlighting the policy's unique coverages are often the most compelling during your proposal and sales process. You can customize coverage examples to address each customer's specific needs. However, exercise caution when altering any proposal language to prevent unintentionally broadening coverage beyond what the policy intends.

For a comprehensive account proposal, combine this with proposals covering other lines of business, such as commercial property, liability, crime, umbrella, and workers compensation.

Related Articles:

ISO Time Element Coverage Forms Available Endorsements and Their Uses

ISO Time Element Coverage Forms Endorsements Checklist

INTRODUCTION

All business operations can face financial challenges if their usual revenue stream is disrupted. When revenue stops due to direct damage to on-premises property caused by a covered cause of loss, the Insurance Services Office (ISO) Business Income (and Extra Expense) Coverage Form offers support.

BUSINESS INCOME (AND EXTRA EXPENSE) COVERAGE FORM

This coverage protects against loss of business income and extra expenses at the insured premises. For this coverage to apply, there must first be a covered property damage loss as outlined in the policy.

Coverage

Business Income consists of two separate components:

·         First is the net profit or loss that would have been generated if there had been no direct property damage. For manufacturers, this also includes the net sales value of their product.

·         Second are the operating expenses that continue after the physical loss, such as payroll expenses.

The insurance company covers the actual business income loss faced by the named insured if operations are suspended during the restoration period. The suspension must result from direct physical damage or loss to covered property caused by a covered peril at an insured location with a specified business income coverage limit.

Extra Expense Coverage also applies when a limit for Business Income is specified on the declarations. This covers the costs the insured incurs during the restoration period that they would not have incurred if there had not been a covered direct physical loss to covered property.

The insurance company also covers additional expenses the named insured incurs to maintain operations at the insured premises or a temporary or replacement location. It also reimburses costs that help reduce business disruption if operations cease. Additionally, it covers extra costs to speed up the repair or replacement of property, provided they reduce the loss of business income.

Covered Causes Of Loss

There are three types of causes of loss forms available. The basic and broad forms specify the causes of loss covered, while the special form includes any cause of loss not limited or excluded.

Basic Form

This form includes causes of loss from:

·         Fire

·         Lightning

·         Explosion

·         Windstorm

·         Hail

·         Smoke

·         Aircraft

·         Vehicles

·         Riot

·         Civil Commotion

·         Sprinkler Leakage

·         Vandalism

·         Sinkhole Collapse

·         Volcanic Action

Broad Form

This form includes all of the causes of loss from the Basic form, plus the following:

·         Breakage of Glass

·         Falling Objects

·         Weight of Snow

·         Ice

·         Sleet

·         Water Damage

Special Form

This form includes any cause of loss that is not explicitly excluded or limited. If it is neither excluded nor limited, it is considered included.

Exclusions

Exclusions are part of every insurance policy. Understanding these exclusions in advance is crucial so that additional coverage can be purchased or cash reserves can be allocated to cover such losses. All covered causes of loss forms are subject to the following exclusions.

Ordinance or Law

This refers to any increase in the cost of a loss caused by ordinances or laws that are enforced or must be complied with. This exclusion applies even if the building must be demolished and rebuilt to meet new building codes and ordinances that were not required when the building was originally constructed.

Earth Movement

This includes any form of earth movement, such as earthquakes, mudslides, mudflows, and volcanic eruptions. There is a limited exception for loss or damage caused by volcanic activity or sinkhole collapse.

Governmental Action

This is when the government seizes property for any reason and damages it. An exception applies when the damage is done intentionally to prevent the spread of a covered fire.

Nuclear Hazard

This applies to any loss or damage resulting from nuclear radiation, radioactivity, or related events.

Utility Services

This is when a utility service fails due to an issue at a location away from the insured's premises. Coverage also excludes problems on the insured’s premises caused by utility-owned equipment that delivers the utility service from off-site to the insured’s property.

War and military action

This includes any and all types of war, military operations, and related activities.

Water Damage

This includes any and all types of water loss, including floods, sewer and drain backups, wind-driven rain, and similar events.

Mold, Mildew, And Fungus

This includes property damaged by mold, mildew, or fungus. However, this exclusion does not apply if the damage results from a covered fire loss.

Causes Of Loss–Special Form Additional Exclusions

Because of the extensive range of the special causes of loss form, additional exclusions are needed to control insurance costs. Many exclusions pertain to losses considered typical business expenses. Some are for catastrophic losses, while others are better addressed with specialized coverage or policies.

The following loss events are excluded: 

·         Artificially generated electrical arcing

·         Delay or loss of market

·         Smoke used for agricultural or industrial smudging

·         Wear and tear

·         Settling, cracking, and shrinking

·         Animal infestations

·         Mechanical and machinery breakdowns

·         Marring and/or scratching

·         Steam boiler explosion

·         Water seepage lasting more than 14 days, causing loss or damage without the insured taking action or notifying anyone.

·         Loss or damage by water caused by plumbing or other building systems freezing if heat isn't maintained or water systems aren't drained in unheated buildings.

·         Dishonest acts committed by the named insured, its partners, employees, or others entrusted with property.

·         Fraud, trickery, or deception by others against the insured or employee resulting in covered property being handed over to the perpetrator and lost.

·         Property in the open that can be damaged by rain or other weather conditions.

·         Pollutant discharge of any kind except as specified in Additional Coverages.

·         Failure of the insured to save and protect damaged property from additional damage.

·         Weather conditions causing an excluded loss to covered property. An exception applies for any subsequent loss if a covered cause of loss results.

·         Acts or decisions, including inaction, by any individual, group, organization, or government entity that led to or caused loss or damage. An exception is made if a subsequent loss results from a covered cause of loss.

·         Faulty, inadequate, or defective planning, design, materials, or maintenance that causes loss or damage. An exception applies if a covered cause results in subsequent loss or damage.

Additional Limitation–Interruption of Computer Operations

Business Income Coverage does not cover suspensions caused by destruction, corruption, loss, or damage to electronic data. Extra expense coverage does not extend to actions taken to eliminate or minimize such suspensions. However, this limitation does not apply to Additional Coverage–Interruption of Computer Operations, detailed in the next section. It also excludes coverage for electronic data within building systems like HVAC, elevators, lighting, and security systems.

Electronic data consists of facts, information, or computer programs stored on or transferred to and from computer software or other media used with electronically controlled devices.

Additional Coverages

The following additional coverage is included at no extra charge. Each coverage has its own insurance limit, coverage description, limitations, and exclusions.

Civil Authority

This covers actual business income losses and extra expenses caused by civil authorities blocking access to the covered location. Such action must result from:

·         Direct physical damage to nearby property caused by a covered peril; and,

·         Affected property must be within one mile of the insured location.

There is a 72-hour waiting period, and coverage lasts up to four weeks.

Alterations and New Buildings

This covers actual loss of business income and extra expenses incurred due to physical damage at the insured location caused by a covered peril, affecting any of the following:

·         New buildings or structures, either completed or still under construction.

·         Changes or additions made to existing buildings or structures.

·         Property on or within 100 feet of the insured building used for construction or incidental to the occupancy of new buildings.

Extended Business Income

This coverage extends loss of business income protection for an additional 60 days after the business has been restored and operations resume, allowing activity and income to return to pre-loss levels.

Interruption of Computer Operations

This coverage safeguards against financial losses from business income disruption and/or extra expenses resulting from direct damage to electronic data.

·         $2,500 limit applies.

·         It includes the same items as those covered under the Additional Limitation–Interruption of Computer Coverage.

·         An annual aggregate limit applies.

o   This means, regardless of how many losses or locations are involved, once the limit is exhausted, no further coverage is available for the remainder of that term. 

·         Coverage ends once the restoration period is over, even if the limit has not been reached.

·         The limit can be increased.

·         Limited causes of loss are applicable.

Coverage Extension

Newly Acquired Locations

·         Covered property with at least 50% coinsurance can be extended to newly acquired locations, excluding fairs or exhibitions.

·         Maximum coverage amount is $100,000.

·         Acquisition must be reported to the insurance company within 30 days of purchase or, if new construction, after construction begins.

Limits Of Insurance

·         The maximum payment for any single event is limited to the amount specified in the declarations.

·         Loss payments for coverage related to Alterations and New Buildings, Civil Authority, Extra Expenses, or Extended Business Income are included in this limit and are not separate.

·         Coverage limits for Interruption of Computer Operations and Newly Acquired Locations are separate and do not count toward the Limit of Insurance specified in the Declarations. 

Loss Conditions

This section applies after a loss. Each party to the contract must act in accordance with the specified conditions. These are mandatory, not optional.

Appraisal

This clause explains how the insured and the insurer can resolve disputes and determine the amount of loss.

Duties in the Event of Loss or Damage

This condition describes what the insured must do after a loss to protect property, prevent further damage, and maintain coverage.

Loss Determination

This provision describes how the insurance company handles and reimburses losses. It specifically covers business income loss, extra expenses, the restoration of normal business functions, and failure to resume operations.

Not Resuming Operations

This condition clarifies that the insurance company will not pay more for a business income loss than it would have owed if the insured had resumed operations as quickly as possible following a loss.  

Loss Payment

This condition specifies that payment for a loss is issued within 30 days after the insurance company receives a signed proof of loss, as long as both parties agree on the loss amount or an appraisal award has been established.

Additional Condition–Coinsurance

Coinsurance is an agreement where the named insured agrees to keep a specific percentage of expected earnings as their insurance limit. If this agreement is violated during a loss, a penalty is imposed. This condition explains how the penalty is calculated and applied.

Optional Coverages

The following optional coverages are included when they are listed on the declarations. When any of the first three options are selected, no coinsurance penalty applies.

Maximum Period of Indemnity

Coverage for business income loss and extra expenses applies either for 120 days after the restoration period begins or until the insurance limit on the declarations is exhausted.

Monthly Limit of Indemnity

A percentage shown by the fractions 1/3 (33 1/3%), 1/4 (25%), or 1/6 (16 2/3%) must be entered on the declarations. If a loss occurs, only the percentage of the insurance limit is available to cover losses within each 30-day period. Payments stop once the monthly limit is reached and do not resume until the next month. This cap remains in effect until the limit is exhausted.

Business Income Agreed Value

This option offers the advantage of applying a coinsurance credit to the rating without the risk of a penalty at the time of loss. The agreed value clause expires, and the coinsurance condition is reinstated unless a new worksheet is submitted every 12 months or whenever limits change.

Extended Period of Indemnity

Additional Coverages–Extended Business Income extends coverage for 60 days after business operations resume. This optional coverage extends coverage beyond 60 days to the number specified on the declarations.

Definitions

Refer to the coverage form for the definitions.