TIME ELEMENT COVERAGE
RATING CONSIDERATIONS
(December 2025)
When a covered loss
results in direct physical damage to property, it triggers the time element
coverage. This coverage is rated based on the building rate at the insured
location. The time element coverage is separate from the direct damage coverage
and can be provided by the same or a different insurance company.
The Insurance Services
Office (ISO) business income rating factors are located in Rule 50 of the ISO
Countrywide form rules for Business Income Coverage. A specific table is shown
for the rating factors and is based on three criteria:
o
CP
00 30–Business Income (and Extra Expense) Coverage Form
o
CP
00 32–Business Income (without Extra Expense) Coverage Form
o
Mercantile
and Non-Manufacturing
o
Manufacturing
and Mining
o
Rental
Properties
This factor ensures the
insured maintains adequate business income coverage. The business income limit
is determined, and then a percentage from 0% to 125% is chosen depending on the
recovery period. A lower percentage means quicker recovery and a higher
premium, while a higher percentage indicates slower recovery and a lower
premium.
NOTE: No-coinsurance is
equivalent 0%.
The basic formula for
calculating business income coverage is to add net income, continuing operating
expenses, and extra expenses. Once the insured coverage limit is determined,
the rating formula begins with the building rate and is adjusted using the
business income rate factor table found in the ISO Countrywide manual under
Rule 50.
The coinsurance option
can be burdensome. This is why there are three alternatives available:
The first two
options—Maximum Period of Indemnity and Monthly Limit of Indemnity—each have
unique rating factors, which are available in the ISO Countrywide Manual under
Rule 51. These factors are multiplied by the building rate to determine the
final business income rate. The insurance limit is then multiplied by this rate
to calculate the premium.
The third option –
Business Income Agreed Value – calculates a rate based on the basic formula
outlined above and then adds a 10% surcharge. The insurance limit is multiplied
by the adjusted rate to determine the premium.
Each business income
endorsement is handled using its specific rating formula, beginning with ISO
Rule 51 – Business Income Options.
Under ISO Rule 52, three
percentage options are offered within the basic extra expense rating rules.
Each option involves multiplying a specific factor by the building rate to
determine the extra expense rate. The standard options are 100/100/100, 40/80/100,
and 35/70/100, with the 40/80/100% being the most frequently used.
If the three options above
do not meet the insured's needs, ISO offers additional choices under Rule 53,
Extra Expense Options. These allow the named insured to choose a breakdown that
best suits their needs. The only conditions are that the first percentage is at
least 35%, with each subsequent percentage being equal to or greater than the
previous one, and the last percentage equals 100%.
The
building rate is multiplied by the extra-expense factor to obtain the
extra-expense rate. This rate is then multiplied by the insurance limit per
$100 to determine the premium.
ISO Rule 65 Leasehold
Interest Coverage outlines the guidelines for rating this coverage, which
consists of two parts.
Step 1: The starting point is
the gross leasehold interest per month, which is the difference between the property's
current rental value and the rent paid by the named insured.
Step 2: Using the inception
date, multiply
Step 1 by the applicable leasehold interest factor.
Step 3: Using the expiration
date, multiply Step 1by the applicable leasehold interest factor.
Step 4: Add together the
outcome of Step 2 and Step 3.
Step 5: Divide the sum of step
4 by 2. The result represents the average insurance limit for the policy term.
Step 6: Multiply the outcome of Step 5 (in hundreds) by
the basic 80% coinsurance building rate to determine the premium for tenants'
lease coverage.
NOTE: A second method for determining tenants'
lease premiums uses an algebraic formula. However, the final result should be
similar.
Step 1: Calculate
the average net leasehold interest for the policy term by averaging the product
of the monthly leasehold interest and the remaining months at policy
inception.
Step 2: Calculate the average
net leasehold interest for the policy term by averaging the product of the
monthly leasehold interest and the remaining months at policy expiration.
Step 3: Add together Step 1 and
Step 2.
Step 4: Multiply the result
from Step 3 by the basic 80% coinsurance building rate per hundred of the limit
to determine the premium for bonus payments, improvements, betterments, and
prepaid rent.