Types of Property Policies Practice Test 2025 - Free Property Policy Practice Questions and Study Guide

Business income coverage is designed to compensate a business for lost income and ongoing expenses in the event of a covered loss, such as fire damage. Specifically, this type of coverage pays for the net income that the business would have earned had the loss not occurred, as well as for any continuing expenses that must still be paid during the period of restoration.

This means that while the business is unable to operate due to the fire, it can receive funds to cover its regular operating expenses (like rent, utilities, and payroll) and the profits it would have made during that time. This is particularly important for businesses seeking to maintain financial stability after an unforeseen event that disrupts operations.

The other options do not accurately reflect what business income coverage specifically addresses. Annual sales minus cost of goods sold and sales revenue minus raw stock costs do not account for the ongoing fixed expenses a business incurs, and loss of total annual sales does not match the purpose of compensating for net income and continuing expenses during a recovery period. Therefore, the option that clearly encompasses the protection offered by business income coverage is the one referring to net income and continuing business expenses.