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Waiting Period for Coverage on Business Income Insurance

Posted on 12/29/2011 by Administrator Account

Business Income policies have not always had a waiting period for coverage to begin; but, clearly for more than a decade the ISO forms have included a 72 hour waiting period. Most recently, some of the company forms have changed from using the term "waiting period" to the term "deductible". The change of name is for clarity purposes.

Business Income policies have not always had a waiting period for coverage to begin; but, clearly for more than a decade the ISO forms have included a 72 hour waiting period. Most recently, some of the company forms have changed from using the term "waiting period" to the term "deductible".  The change of name is for clarity purposes.  I believe that the intent of the "waiting period" was to operate like a deductible, meaning that for the first 72 hours a business is non-operational due to a covered situation for which there is no reimbursement for business income losses.  However, one interpretation has been is that if the loss exceeds 72 hours that the business income payment goes back to the first hour of loss, therefore the term “waiting period,” waiting to see if the period of loss is more than 72 hours before a loss is payable.  A deductible would apply regardless if the loss was less or more than 72 hours.
 
The waiting period is only applicable to Business Income losses. If the policy is written to combine both Business Income and Extra Expense or if Extra Expense is written on a separate coverage form there is NO waiting period for the Extra Expense portion. 

It is important to consider either eliminating the waiting period or modifying it to 24 hours.  Whenever considering endorsements on Business Income forms it is important to know that when rating for business income the insurance companies use the building rate of the building where the insured is located.  Building rates can differ based on the age, construction and type of occupancy.  When reducing a waiting period to 24 hours the typical charge is in the range of a 5% surcharge on the building rate.  To eliminate the waiting period the rating factor is in the range of 15% surcharge.  When you consider that building rates can be very low, the factor does not significantly impact the premium. 


One last consideration in removing or lowering the waiting period is that the waiting period on Business Income would also apply to the Utility Interruption Indirect coverage which is a significant consideration.

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