Use and Occupancy Insurance (U&O)

What Is Use and Occupancy Insurance (U&O)?

Use and occupancy insurance (U&O), formerly known as business interruption insurance or business income coverage, is a type of insurance that covers the loss of use of machinery or property due to damage caused by a named peril or hazard, such as a fire or natural disaster. It also covers the resulting loss of income. Use and occupancy insurance provides coverage through endorsements to property/casualty insurance policies if the equipment or property cannot be used.

Key Takeaways

• Use and occupancy insurance (U&O) is a type of insurance that covers the loss of use of machinery or property due to damage caused by a named peril or hazard, such as a fire or natural disaster. It also covers the resulting loss of income.
• Property insurance covers the physical property, including the location, grounds, equipment, supplies, and merchandise of the business, while use and occupancy insurance covers the loss of income from the operations of the business if the property damage forces the business to suspend operations.

Understanding Use and Occupancy Insurance (U&O)

Use and occupancy insurance (U&O) reimburses the policyholder for lost business income when a covered incident renders the business location or equipment unusable. Covered incidents include fires, floods, hurricanes, and other disasters specified in the policy. If an incident occurs that makes the business location or equipment unusable, but it is not covered by the insurance, the lost business income will not be compensated.

Use and occupancy insurance (U&O) can pay for lost income based on records of business income. The policyholder and the agent who sells the policy determine the specific amount of lost income written into the policy. Alternatively, the insured can be paid a fixed daily amount for the period when they cannot use or occupy the covered property due to an insured peril.

The payable amount is determined by reviewing past financial records of the business. Coverage can also continue beyond the date when the location or equipment become usable again, but this must be written into the policy.

Use and Occupancy Insurance vs. Property Insurance

Use and occupancy insurance, or business interruption insurance, and property insurance are both types of insurance taken out on businesses and business locations. Property insurance covers the physical property, including the location, grounds, equipment, supplies, and merchandise of the business.

On the other hand, business interruption insurance covers the loss of income from the operations of the business if property damage forces the business to suspend operations. Having business interruption insurance can help a business continue operating by covering fixed costs such as rent, electricity, and business licenses while the location and property are being repaired and restored to functionality.