Time Element Coverages & Endorsements
This domain tests business income and extra expense mechanics: how the loss is measured, how long it lasts, how coinsurance applies, and which additional coverages respond when access or a supplier is interrupted. Expect calculation questions and questions on the period of restoration.
Measuring business income
Business income is net income plus continuing normal operating expenses, including payroll-not gross revenue. The insured recovers actual loss sustained during the period of restoration. That period begins at the time of loss and ends when the property should be repaired or replaced with reasonable speed, or when operations resume at a new permanent location. It does not extend for contractor delays or extra time to comply with ordinance or law unless endorsed.
Extra expense
CP 00 20 combines business income and extra expense. CP 00 30 provides business income without extra expense; CP 00 32 is stand-alone extra expense. Extra expense covers reasonable costs to avoid or minimize suspension-temporary locations, overtime, expediting, or renting equipment-and is not subject to business income coinsurance.
Coinsurance and endorsements
Business income coinsurance percentages commonly range from 50% to 125% of the 12-month exposure. The formula is (limit ÷ required) × loss, then subtract the deductible. Agreed Value removes the coinsurance penalty. Extended business income continues coverage for 30 days after property is restored; an extended period of indemnity endorsement lengthens that tail.
Additional coverages
Civil authority responds when an action of a civil authority prohibits access because of damage to nearby property; the form imposes a 72-hour waiting period. Dependent property responds when a named supplier, customer, or leader property suffers physical damage, subject to the form’s waiting period.
Worked example
A 50% business income coinsurance clause applies. The 12-month exposure is $1,200,000; the limit is $500,000. Required insurance is 50% × $1,200,000 = $600,000. The ratio is $500,000 ÷ $600,000 = 0.8333. A four-month loss of net income and continuing expenses is $300,000. The coinsurance-adjusted loss is 0.8333 × $300,000 = $250,000. Subtract the deductible to reach the payment. If the limit had been $600,000, the full $300,000 would be payable before the deductible.
Traps that cost marks
Do not use revenue as the measure of loss. Do not forget continuing payroll. The period of restoration ends at “reasonable speed,” not at the contractor’s actual completion date. Civil authority has a 72-hour waiting period. CP 00 30 does not include extra expense.