Dear JSA,
I’ve always thought that when writing Business Income coverage on a 1/3, 1/4, or 1/6 limitation, that the insured will have coverage for 3, 4, or 6 months. Is that correct?
Sincerely,
Befuddled ’bout BI
Dear Befuddled,
Lots of folks think this is the case, but in actuality, the limitations refer to the portion of the total limit available during any 30-day period following the covered loss. For example, if an insured has $120,000 of business income coverage written on a 1/3 limitation, she would have a maximum limit of $40,000 of BI coverage available during each 30-day period following the loss.
There is no “carry over” of business income coverage month-to-month if the max monthly limit isn’t used; the insured is never going to have more than the monthly max coverage amount available in any 30-day period. If the max monthly limit isn’t exhausted, the insured simply starts the next 30-day period with whatever the max monthly coverage limit is.
For example, with $120,000 of total BI coverage, written on a 1/3 limitation, the insured has a total of $40,000 coverage for the first 30-day period, a total of $40,000 for the next 30-day period, and so on. If the insured only uses $35,000 the first 30 days, $40,000 the second 30 days, and $40,000 the third 30 days, she still has $5000 coverage remaining for use in the next 30-day period, or whenever it’s needed.
