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Monthly Limit of Indemnity Form for Business Income

Posted on 12/29/2011 by Administrator Account

On an ISO Business Income Coverage Form there are three ways to write the coverage: Coinsurance, Maximum Period of Indemnity; and Monthly Limit of Indemnity. Each one of these methods will impact how much coverage must be carried and how the form will respond to a covered loss.

On an ISO Business Income Coverage Form there are three ways to write the coverage:  Coinsurance, Maximum Period of Indemnity; and Monthly Limit of Indemnity.  Each one of these methods will impact how much coverage must be carried and how the form will respond to a covered loss. 

If the Monthly Limit of Indemnity option is chosen there is no "coinsurance." The Monthly Limit of Indemnity Form provides coverage as its title would imply:  the form limits the amount of claim payment on a monthly basis based on the percentage indicated on the Declarations Page.  There are typically three available percentages:   1/3 (33%); 1/4 (25%); 1/6 (16.6%). The percentage that applies will be indicated either by a fraction or percentage on the Declarations Page. The form provides:


The most we will pay for loss of Business Income in each period of 30 consecutive days after the beginning of the "period of restoration" is:


1) The Limit of Insurance, multiplied by

2) The fraction shown in the Declarations for this Optional Coverage

When you first look at the percentages and read the form language it might appear that the 1/3 form would last 3 months; 1/4 form lasts 4 months and the 1/6 would last 6 months.  In fact, the form does not say that at all.  What the percentages signify is that you can never collect more than the percentage times the loss in any 30 consecutive days.  It is possible that the insured will not be able to prove they need 1/3 of the limit in a given month.  Then, whatever is left in the total limit is available in a subsequent month.  The only proviso is that the insured cannot collect more than that percentage in any thirty day period. 


The downside of using the Monthly Limit of Indemnity form is that it does not allow for any significant peaks in income.  The advantage is that there is no penalty for underinsurance as there is in the coinsurance form.

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