Earnings insurance is a type of business insurance that can help to offset losses that occur due to events that interrupt the commercial activity of a company. Considered a form of business interruption insurance, coverage of this type is helpful in dealing with the loss of revenue generated by any type of event covered in terms and conditions of the policy. With most plans of this type, limits are placed on the amount that may be claimed each monthly day period, rather than including a coinsurance clause in the terms.
The purpose of earnings insurance is to provide partial relief from the losses that may occur when a business is unable to carry on its normal operations for a period of time. In most cases, the coverage is intended to aid with short-term interruptions in business operations, such as temporary closures caused by damage to the site of operations. The idea is to help minimize the loss of profits sustained during these involuntary closures and provide the business with resources that make it possible to reopen once the event has passed.
Determining the amount of benefits derived from earnings insurance during any monthly period will depend greatly on the nature of the event that led to the involuntary closure and the total amount of coverage provided in the policy’s terms and conditions. Actual disbursements are calculated as a percentage of the total amount that is set aside in the terms for the type of events involved, allowing for the total amount of loss claimed for a given monthly period. Higher rates of coverage for certain events will mean the potential to receive greater benefits should one or more of those events take place.
As with any type of business insurance, comparing earnings insurance plans before settling on a specific policy is very important. Companies should pay close attention to the more common events covered in the terms and identify how the scope of coverage compares to the amount of money they would need to keep the company afloat during a temporary shutdown due to one of those events. Since additional coverage will also mean higher premiums, it is important to find the ideal balance between benefits and costs when comparing two or more insurance plans. While the hope is that the earnings insurance will never be needed, choosing the right plan will make the task of rebuilding after sustaining a covered loss much easier.
