What Is Time Element Insurance Coverage?
As a general definition, time element coverage insurance refers to claims of monetary loss due to the inability to use a property as a result of damage. The amount of revenue lost is directly correlated with the time your property cannot be used, hence the "time element."
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Examples of Time Element Claims
Commercial Real Estate
You own a commercial building that generates revenue by renting space to several different commercial tenants. Due to a problem with the building's electricity, a fire starts that damages the majority of the building. You can no longer rent the property and generate income.
The problem is you still have bills to pay and are relying on the revenue generated to pay your personal expenses.
Business income and extra expense insurance (time element coverage) will pay for your net income and normal operating expenses while your building is nonoperational due to the damage.
Manufacturing Equipment
Your computer numeric control (CNC) machines are a core part of your operation. Almost every product that you produce is machined on your equipment.
A tornado comes through your industrial complex and severely damages your building and its contents. Not only did the power surges damage the machines, but the water resulting from the building damage ruined the machines, too. You cannot machine parts, yet ordering new machines is expensive and could take a considerable amount of time.
In addition to the property loss and time down, you have very specialized employees who cannot go months without a paycheck. You're worried that you are going to lose irreplaceable employees, which could cost you your business altogether.
Time element coverage insurance would pay the net-income that your business would have generated, normal operating expenses, and ordinary payroll to keep your workers paid.
Retail Store
Your retail store sells an assortment of boutique clothes. Some of your items are handmade and local, while others are sourced from various companies. You have worked hard to have a diversity in stock to satisfy your customers.
Due to a natural disaster, you are forced to shut down and evacuate temporarily. You come back to discover that your store and stock are completely ruined.
The problem is the stock you usually carry cannot be ordered at the quantity you need to reopen without fees, so you won't be fully functional for some time.
Plus, you need to move to another location fast. You have to pay for a moving company, additional staff, a construction team at the new location, restocking fees, rent at your new location, and PR to let everyone know you have reopened.
Time element coverage can cover your lost income and will also pay for the necessary extra expenses you incur to get your doors back open.
Types of Time Element Coverage Insurance
From construction companies and retail shops to utilities services, time element coverage has some effect on almost every business out there. Some businesses have a much higher exposure to time element losses than others, though. If you are dependent on a building, contents in a building, or a specific piece of equipment to generate revenue, this coverage is a must-have.
There are two common types of time element coverage insurance:
Business Income Coverage
Business income coverage pays for your net income and normal operating expenses while your business is closed (or in a reduced capacity) due to a covered property claim.
This coverage would pay for your bills, mortgage, employee payroll, and many other things. This is especially critical because it pays those bills during a time when you are not generating revenue and will have a ton of expenses due to the disaster.
Extra Expense Coverage
Extra expense coverage pays for any necessary costs to get your business operational again. This coverage includes expediting shipments, paying for movers, hiring additional staff, covering construction costs to outfit your temporary location, and much more.
Getting your doors back open is critical in the event of a disaster. Extra expense coverage will help you set up somewhere else and minimize the financial damage that occurred due to the disaster.
Utility Services Time Element Coverage
If your business could close down due to a utility service outage, chances are you need utility services time element coverage. Similar to business income and extra expense, this covers your time element exposure from core utility outages. Generally, this coverage is available for water supplies, communications, and power, although some insurance carriers offer different or unique coverages depending on your business.
Contingent Time Element Coverage
Most businesses rely on a certain amount of critical suppliers in order to generate revenue. For a manufacturer or construction company, this could be raw materials. For a retail store, this could be the supply of products you sell.
A traditional property insurance policy only covers property and time element losses on property that you own and is located on your business premises. But what if your supplier experiences a loss and is unable to supply you with the materials you need to keep your doors open?
Contingent time element coverage extends your coverage to your most critical suppliers. If they experience a covered loss that affects your revenue, your time element costs would be covered under your insurance program.
How Much Does Time Element Coverage Cost?
Time element coverage insurance is usually a tiny portion of your overall insurance costs. For a small to medium-sized business, it can range anywhere from $100-$2000 annually. Of course, the more revenue and the more complex your financials, the more the coverage will cost. Usually, it ends up being a good deal and very small premium charge.
Summary
Time element coverage is a risk that most businesses do not consider in their insurance plan, but it might be the most important property coverage an organization can purchase.
Most insurance carriers that underwrite property insurance will also add time element coverage on their policy. We recommend asking your broker about your time element risks and the cost to add coverage for your organization.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.