A client's commercial building is insured under a Businessowners Policy (BOP). An explosion on an adjacent property causes significant damage to the client's building, forcing them to close for two months for repairs. During this period, they lose $50,000 in income they would have earned. The BOP includes Business Income coverage with a 72-hour waiting period. How much will the policy pay for the loss of business income, assuming no other limits apply?
- AA prorated amount based on the waiting period.
- B$50,000
- C$48,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: A. A prorated amount based on the waiting period.
Business Income coverage typically includes a waiting period (deductible) expressed in hours or days, during which no loss of income is paid. If the loss is two months (approximately 60 days or 1440 hours), the 72-hour waiting period means the first three days of lost income are not covered. The remaining income for the period after the waiting period would be covered. Therefore, a prorated amount would be paid based on the total loss of income over the two months minus the income corresponding to the first 72 hours. Since no specific daily income is given, a prorated amount is the most accurate answer.
Why the other options are wrong
- B. This is incorrect; the waiting period means not all income is covered.
- C. This is incorrect; the specific calculation would depend on a daily income figure, which is not provided, making a general 'prorated amount' more appropriate.
- D. This is incorrect; some income loss will be covered after the waiting period.
Business Income Waiting Period
A time deductible in Business Income (and Extra Expense) coverage, specifying a period (e.g., 72 hours) immediately following a direct physical loss during which no loss of business income is payable.
- Functions like a time-based deductible.
- Begins at the time of direct physical loss.
- Insured bears the loss of income during this initial period.
Memory trick: Income stops, clock starts. Wait for the 'period' to pass before the money flows!