Recent news of a Philadelphia food truck commissary fire has led to a lot of requests from our readers on the subject of business income insurance. If business income insurance is a new term for you, it is a way of insuring the income of your food truck business in the case of a disaster.
Also known as business interruption insurance, business income insurance works with your property policy and provides coverage for events beyond your control such as fire, wind, hail, vandalism or damage from vehicles that may interrupt your mobile food business. Business income insurance is something that every food truck vendor should consider.
Understanding Business Income Insurance
What Business Income Insurance Covers:
- Replacing lost net income.
- Pays for continuing expenses, such as a truck lease, advertising, taxes and payroll.
- Pays for relocation expenses and advertising fees if you are forced set up at a temporary commissary.
What Business Income Insurance Does Not Cover:
- Economic or seasonal downturns.
- Poor management decisions leading to loss of income.
- Changes in food truck regulations that result in lower income.
- Natural environmental conditions (i.e., heavy rain, snow storms, etc.)
- Loss of profitability due to competition or changing consumer tastes.
Business income is typically defined as the net income (net profit or loss before income taxes) that would have been earned or incurred.
Please remember that you will have to prove your losses. Therefore, it is very important that you maintain good records, profit and loss statements, tax forms, payroll records, etc. to verify the amount that has been lost.
Your insurance company will compare your records to the previous year and previous monthly records to see what the loss actually is. If you do not have an accountant or keep poor records, it will be very difficult to prove your loss.
Payroll is included in business income insurance but only to the extent that employees are still working for you and you are reporting their payroll on your tax roll. If you do not need the services of your employees while your food truck is down, most insurance providers will not cover their lost wages.
PLEASE NOTE: Some policies are written on a monthly limit basis for up to 6 months. This is a limit you choose when buying or renewing your policy. Meaning that once the total policy limit has been reached, the payments cease.
A food truck business that is not selling is not generating revenue. The small profit margins that many food trucks operate with could mean the complete shutdown of the business. If you decide not to go back into business after a disaster, the insurance policy will pay based on the length of time it would have taken to resume operations as quickly as possible.
Remember that it is your responsibility to report claims quickly, provide all documentation requested and to mitigate your loss by getting your food truck back on the road as soon as possible.
Your food truck business should have property insurance on your truck (and your commissary should have it on their property). Insurance companies do not offer business income insurance as a standalone policy so make sure you speak with your agent to determine the best way to provide business interruption insurance for your food truck.