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Business Income

Practice questions on business income for the property exam, each with an answer and explanation.

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Study questions and answers

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1. The Business Income (and Extra Expense) Coverage Form pays for:

  1. Damage to the insured's building
  2. Net income the business would have earned plus continuing normal operating expenses
  3. The insured's liability to customers
  4. Only the cost of moving to a temporary location
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B. Net income the business would have earned plus continuing normal operating expenses
Business income covers the net income lost and the normal operating expenses, including payroll, that continue during the period of restoration.

2. For business income coverage, the period of restoration normally begins how long after the time of direct physical loss?

  1. Immediately
  2. 24 hours
  3. 72 hours
  4. 7 days
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C. 72 hours
Business income coverage begins 72 hours after the direct physical loss, which acts like a time deductible. Extra expense coverage begins immediately.

3. A restaurant pays extra to rent a temporary kitchen so it can stay open after a covered fire. This cost is best described as:

  1. Extra expense
  2. Business income
  3. Debris removal
  4. Civil authority
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A. Extra expense
Extra expense covers necessary costs the insured would not have had without the loss, incurred to avoid or minimize a suspension of operations.

4. After repairs are complete and the business reopens, the extended business income provision continues paying for lost income while sales recover for up to:

  1. 30 days
  2. 90 days
  3. 120 days
  4. 60 days
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D. 60 days
Extended business income pays for up to 60 consecutive days after the property is repaired and operations resume, unless the optional extended period of indemnity lengthens it.

5. Under the civil authority additional coverage, business income is paid when access to the insured's premises is prohibited by civil authority because of damage to property within:

  1. One mile, for up to four consecutive weeks
  2. Ten miles, for up to 90 days
  3. One block, for up to 30 days
  4. Five miles, for up to six months
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A. One mile, for up to four consecutive weeks
Civil authority applies when the damaged property is within one mile of the premises. Business income coverage begins 72 hours after the first action and lasts up to four consecutive weeks.

6. The coinsurance clause in the Business Income Coverage Form is applied to the insured's net income and operating expenses for what period?

  1. The 12 months before the loss
  2. The 12 months following policy inception or the last anniversary date
  3. The period of restoration only
  4. The prior calendar year
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B. The 12 months following policy inception or the last anniversary date
Business income coinsurance is based on net income and operating expenses that would have been earned in the 12 months following inception or the last anniversary date.

7. Under the maximum period of indemnity optional coverage, the coinsurance condition does not apply, and the most the insurer pays is the loss sustained during the first:

  1. 30 days
  2. 60 days
  3. 120 days
  4. 12 months
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C. 120 days
Maximum period of indemnity drops coinsurance but limits payment to the loss incurred during the 120 days after the period of restoration begins.

8. Under the monthly limit of indemnity optional coverage, the most paid for each 30 consecutive days of the period of restoration is:

  1. A fixed $10,000
  2. The full limit of insurance
  3. The amount of the deductible
  4. A fraction of the limit shown in the declarations, such as one-fourth
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D. A fraction of the limit shown in the declarations, such as one-fourth
Monthly limit of indemnity caps each 30-day period at the fraction shown in the declarations, such as 1/3, 1/4 or 1/6 of the limit. Coinsurance does not apply.

9. A bakery loses income because the only supplier of its flour has a fire and cannot ship. Which coverage is designed for this situation?

  1. Civil authority
  2. Extended period of indemnity
  3. Business income from dependent properties
  4. Utility interruption
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C. Business income from dependent properties
Dependent properties coverage pays for business income lost because of damage at a key supplier, customer, or other business the insured depends on.
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