Business Income for your Tree Service

Written by Mick Kelly

I’ll start this week’s tip with a question: Do you have a piece of equipment or a vehicle that you can’t operate without and would be hard to replace in the current market? 

If the answer is yes, you do have an essential piece of equipment or vehicle and you know it would be hard to replace today, then Business Income coverage is something you should consider strongly.

What is Business Income Coverage?

Business Income Coverage (BIC), otherwise known as Business Interruption Coverage, will replace lost income, in the event of a covered loss to your business property, business vehicle(s) or equipment. 

Who needs it?

Anyone who relies on a certain building, vehicle or piece of machinery in order for their business to operate and generate income. 

How much do I need?

This depends on how much you need the damaged/lost building, vehicle or equipment, how difficult it would be to replace them and how much revenue they generate for you. 

While the calculations can be pretty extensive, I’ve provided an outline at the end of the article. 

Business Income Coverage for Buildings:

In the tree care industry an example of Business Income Coverage for buildings is when a building that you use to kiln dry timber for firewood/lumber sales burns down and you don’t have another kiln to dry out your wood. Thus, you would be losing income for this shutdown in operation until the building is repaired or rebuilt. Coverage applies to loss of income suffered during the time required to repair or replace the damaged property. The Business income Coverage will take your pretax income and, based on the insurer, will pay out a replacement for that income until such time the building is repaired or the indemnity term is reached (usually 12 months). 

How do I know if I have this coverage?

When looking at your declarations pages for the coverage, look under the property section for either: “Business income and extra expense coverage” or “Business income coverage form without extra expense”

Business Income Coverage for Autos:

BIC isn’t typically included on auto policies and probably isn’t necessary for all the vehicles in your fleet. To get paid out for loss to a vehicle, you will have to prove that another similar vehicle wasn’t available for rent/purchase and that there was a loss of income due to not being able to complete a certain job because you were without that vehicle. 

While this would be a hard claim to make on a Ford F150, the same cannot be said for the grapple saw truck in your fleet or a specialty crane. These vehicles are very hard to rent or replace quickly and a tree service could very easily lose jobs if they don’t have this truck operating. 

How should I apply for this coverage:

There are 2 options when applying for this coverage: 

• Listing specific vehicle(s) on your policy with separate limits of insurance for each item (example – 5 trucks, each with its own limit).
• List two or more items under a single limit of insurance that applies to all losses to any or all of the listed vehicles damaged in a single occurrence. The insurance world calls this blanket coverage. This is typically more favorable and acts similarly to blanket property coverage allowing for a higher limit per vehicle.

Business Income Coverage for Equipment:

Again, BIC isn’t typically included on your Inland Marine policies or on scheduled mobile equipment and, just like with the auto policy, it may not be necessary on all equipment.

In the current market we have clients who are struggling to replace chippers and mini-lifts and unfortunately, without those pieces of equipment, they lose jobs to their competitors. The same two options are available for the equipment as are available for the vehicles. 

Waiting Periods:

Instead of having a dollar amount deductible, BIC is subject to a time deductible, which is called a Waiting Period. This is where the insurance company does not pay for the first 72-hours after the incident happened. For an additional premium, the insured can select a 24-hour waiting period or no waiting period.

How to Calculate Business Income Coverage

Again, the calculation of Business Income Coverage can be complex, however, the minimum items to consider when choosing a BIC limit are: Operating Expenses (such as: Taxes, Payroll, Advertising), Fixed Expenses (for example: Utilities, Mortgages or Rent) and your Profit Margin. Follow the three steps below to calculate your coverage limit.  

• Calculate your total revenue.
• Subtract your business’s expenses and operating costs from your total revenue. This calculates your business’s earnings before tax.
• Deduct taxes from this amount to find you business’s net income. Your net income will be the limit that you can insure on your business income policy.

The world of insurance is full of little nuances that can make a huge impact on your company’s success and Business Income Coverage is one of them. If you have any questions on Business Income Coverage for your tree service, please contact an ArboRisk team member today or sign up for our Free Insurance Coverage Review to ensure you are protecting your business as best as possible. If you are ready to take the next step, check out ArboRisk’s Thrive Risk Management New Heights Package! Our most robust risk management package, our team of industry experts can help you focus on key areas to successfully grow your company.