Commercial Insurance – Time Element Coverages

Aug 29, 2018 (0) comment

Time Element Coverages

Time Element

Time Element forms provide coverage for the intangible economic losses that occur following a direct
damage loss to tangible property. These are future-looking forms and coverage is based on the loss of
anticipated economic benefits.
Time Element Coverage—Business Income with Extra Expense
Business income with extra expense provides coverage for the loss of income a business suffers after
direct damage of covered property. In addition, extra expenses that the insured incurs to remain in
operation above and beyond the amount necessary to reduce the business income are also covered.
Automotive operations will want this coverage since they will need to remain in operation after physical
(Refer to ACORD 140)
Time Element Coverage—Business Income without Extra Expense
Business income with extra expense provides coverage for the loss of income a business suffers after
direct damage of covered property. While there is coverage for expenses that are necessary to reduce
the business income loss, there is no coverage for extra expenses incurred to just keep functioning.
Coverage can be purchased on a coinsurance basis or on a monthly limit of indemnity based on the
needs of the risk.
Automotive operations may want to consider this option if they do not anticipate the need for any extra
expense in order to remain in operation.
(Refer to ACORD 140)
Time Element Coverage—Business Income – Coinsurance
Coinsurance is a technique to encourage proper insurance to value. The higher the percentage chosen,
the lower the rate applicable. The lowest rate is at 125 percent. The unusual percentage is used to
Insurance Coverage Definitions
encourage the insured to cover not just the business income but also extra expense that must be incurred
beyond the business income loss. Business income coinsurance is based on time so the insured should
base limits on the consecutive months that generate the highest income. As an example, retailers should
consider using winter months not the summer months. Exterior contractors would use the summer
months rather than the winter.
Time Element Coverage—Business Income – Alternatives to Coinsurance
Agreed value—suspends coinsurance but requires the insured submit annual signed statements
showing the prior 12 months business income and the anticipated 12 months business income.
The insured must then carry a limit of at least 50 percent of the anticipated 12 months business
(Refer to PF&M Section 131.6-4)

Maximum period of indemnity—suspends the coinsurance and will pay the business income for
the 120 days following the date of loss. Coverage ceases after the 120th day even if the limits
have not been exhausted.
(Refer to PF&M Section 131.6-10)

Monthly limit of indemnity—suspends the coinsurance and will pay the business income for 3,
4 or 6 months depending on the selection made. Each month 1/3, 1/4 or 1/6 of the business limit
of liability may be available to pay for the business income loss of that month. If the percentage is
not used the one month, it is not available to pay the next month. As an example, if an insured
chose the 1/3 option with a $60,000 limit there would be $20,000 coverage available each month.
If there is a loss and the first month the loss was $10,000, it would be paid, the next month the
loss was $20,000 and it would be paid, the third month the loss was $30,000—only $20,000
would be paid. There would be no coverage available for the remaining time.
(Refer to PF&M 131.6-5)
Premium adjustment—suspends the coinsurance while making sure the insured only pays for
the coverage purchased. It is similar to a personal property reporting option except that the full
premium is paid up front and the insured is only given a refund, never an additional premium. The
insured submits a statement of estimated business income at the beginning of the time period,
chooses a coinsurance percentage and limit, and pays the appropriate premium. At the end of the
period, the insured submits the statement of actual business income and the premium is
recalculated and a return premium given.
(Refer to PF&M 131.6-7)

Time Element Coverage—Business Income from Dependent Properties
Covers loss sustained at scheduled dependent properties that causes suspension of operations at the
insured property. Dependent properties could be a supplier of the insured or a customer of the insured or
even the lead store at a shopping center that draws customers to the insured. Coverage is provided with
an endorsement to the business income policy. It is not required that business income be purchased on
the insured’s premises in order to purchase business income from dependent properties.
(Refer to ACORD 140) (Refer to PF&M Section 131.6-3)

Time Element Coverage—Extra Expense Coverage Form
Insurance Coverage Definitions
Coverage is provided to pay for all monies that must be expended to get an insured back in business in
the fastest way possible without regard to income to be generated by the return to business. These would
include, but not be limited to, transportation fees when using next -day service rather than normal
shipping schedules, any surcharge to put a rush on a purchase order, special set- up fees that may be
charged for a manufacturing order, etc. When money can be used to re-open an operation (provided it is
legal), then the expense will be paid under this form. The coverage is provided using the ISO standard
Extra Expense Coverage Form.
This coverage should be considered if there would never be business income, but there could be
considerable extra expense to insure that the operation is able to open – under any circumstance.
(Use ACORD 140)

Time Element Coverage—Leasehold Interest
Covers the tenant who has a more favorable long-term lease than the prevailing rate in the area. The
form pays for the difference between the prevailing rents levels and the current rent being paid following
the cancellation of the lease due to direct damage to the building by a covered cause of loss. It covers a
variety of upfront amortized costs in addition to the rental or lease difference. The coverage is a
decreasing coverage based on the length of the lease.
The coverage is provided in a standard ISO property form. The insured can choose basic, broad or
special cause of loss. It is important to review the insured’s lease agreement to determine what would
constitute a loss that would break the lease and therefore trigger the coverage. The lease should then
dictate the cause of loss purchased.
Automotive operations with long-term leases should consider this coverage.
(Refer to ACORD 140) (Refer to PF&M Section 131.4-2)

Time Element Coverage—Ordinance or Law Increased Period of Restoration
There is no coverage in the Business Income Form for any delay due to ordinance or law considerations.
This endorsement will extend to cover the additional time to rebuild and meet the current building codes.
This includes the time to demolish the undamaged portion of the building. Coverage is provided using the
ISO Time Element Endorsement Form to provide this coverage. Other carriers may provide the coverage
through extensions.
If it is determined that ordinance or law coverage for the building and business personal property is
needed, then this form must be purchased because of the increase of time needed to bring the building to
(Refer to ACORD 140)
The standard ISO cause of loss forms exclude coverage for utility service disruption. Since disruption of
electricity, water and communication can stop certain businesses from operating, this cause of loss is
necessary. Coverage may include only the off-site location or may be expanded to include the power or
communication lines.
Insurance Coverage Definitions
Automotive operations cannot operate without utilities. This coverage should be evaluated and the
exposure to loss of utilities considered.
(Refer to ACORD 140)

The ISO property policies are built form-by-form in order to provide maximum customization. Once the
insured has selected the appropriate coverage forms, then the insured must choose the causes of loss
he/she wishes to insure those coverages for. There are three primary options from which to choose.
Earthquake and flood should also be considered.
Property and Time Element Cause of Loss—Basic
This form insures against fire, lightning, explosion, smoke, windstorm or hail, aircraft/vehicle, riot or civil
commotion, vandalism, sprinkler leakage, sinkhole, and volcanic eruption.
(Refer to ACORD 140)

Property and Time Element Cause of Loss—Broad
This form insures against all of the basic cause of loss items plus falling objects, weight of ice, snow or
sleet, water damage from plumbing fixtures and collapse due to any of the named items in basic and
broad causes of loss.
(Refer to ACORD 140)

Property and Time Element Cause of Loss—Special
This form insures against risks of direct physical loss except as limited or excluded in the policy. This
provides the broadest coverage of the three forms available.

(Refer to ACORD 140)

Property and Time Element Cause of Loss—Earthquake
Earth movement is excluded from all primary causes of loss forms. Coverage for earthquake damage
may be provided in three different ways:
 The cause of loss may be included by using ISO Form CP 10 40.
 DIC policy may be purchased with earthquake as a covered cause of loss.
 A separate policy for earthquake only may be purchased from a nonstandard market.
The first two options are the most positive way to gain the coverage but the nonstandard market may be
the only place to obtain this cause of loss in certain earthquake-prone areas and with certain types of

Insurance Coverage Definitions

properties. Deductibles that are a percentage of the limit of insurance are common ranging from 1 to 10
(Refer to ACORD 140)

Property and Time Element Cause of Loss—Flood
Covers buildings and their contents on either a replacement cost or an actual cash value basis against
direct loss by flood. Coverage is available in the standard market through DIC forms or other coverage
forms developed by individual carriers in selected areas. In areas declared eligible by federal insurance,
federal flood insurance is written with the National Flood Insurance Program.
Any insured who is located in flood-prone areas should consider purchasing flood insurance through the
federal program.
(Refer to ACORD 301, 303)

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