Business Income Coverage

Business Income Coverage: What’s Enough for You?

The right business income and extra expense coverage can be hard to determine. Our resources can help.

When districts are shut down due to a covered loss, business income and extra expense coverage can help keep the lights on, so to speak, until operations resume. Although these two coverages can work together to help members in difficult times, it is best to think about them separately.

How do I tell the difference?

Business income will pay for continuing expenses and net income that would usually be earned from normal operations had there not been a loss. On the other hand, extra expense coverage pays for many of the additional costs that your district would not normally pay, but become necessary as a result of the loss.

Under the CSD Pool’s property coverage, members have a $250,000 Business Income and Extra Expense sublimit. Our Business Interruption worksheet can help members determine what suits their operations, and is available for download at csdpool.org/documents. As you’re filling it out, consider the following example which will help you determine what to include.

Let’s say your golf course clubhouse was damaged and deemed inoperable due to a wildfire or electrical fire. While property coverage will pay to rebuild the clubhouse, business income coverage replaces the lost income and covers ongoing expenses such as payroll while the clubhouse is being rebuilt. In this case, since the golf course is critical to operations, our coverage ensures you have the capital to do so.

Extra expense coverage is also important at a time like this because it will cover the necessary expenses to remain operational.  In this example, extra expense will cover the cost of such items as a mobile office rental, porta potty rental, vending machines, and more.

To keep these coverages straight, just remember that business income is used to replace the lost income from sales and/or fees and to cover continuous expenses such as loan payments and payroll. Extra expense coverage funds your contingency plan to get stay in business while your property is being repaired.

Tips for completing the worksheet

As you fill out the worksheet, think in terms of the above example of a damaged golf course clubhouse as reference.

To begin, list total revenue generated from the clubhouse. Then, subtract the revenue that you will continue to receive such as taxes and interest. If you are able to resume operations by constructing a temporary shelter for taking reservations, you will subtract the revenue from golf course reservations that accrues while the clubhouse is being rebuilt. After that, list your total operating expenses, and then subtract the expenses affected while the clubhouse is inoperable, such as supplies, inventory, and building maintenance.

In the second part of the worksheet – Estimated Extra Expense—list additional expenses you may incur due to the fire. If you followed the example above, you would list the office trailer rental, porta potty rental, and vending machine rental expenses.

Once all of these expenses are accounted for, add the business income subtotal, the operating expense subtotal and the extra expense subtotal. The final total is the limit of coverage needed for both loss of business income and extra expense. Repeat this exercise for all locations or operations.

Most districts need more than $250,000 unless user fees/sales receipts are not collected for operations. The cost for this coverage is nominal when compared to the amount of money needed at the time of the loss.  If you would like help completing the worksheet, please contact us at info@csdpool.org. We are happy to walk through it with you.

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