In a perfect world, lost business income would be a straightforward calculation upon which the insured and the insurer would agree. Because calculation of lost business income is based on “what-ifs” — as in, what if the fire, windstorm, water break, or so on hadn't happened — it necessarily involves assumptions with respect to what might have been.

The essential purpose of business-income protection is to put the insured in the same place, financially speaking, that he would have been had no loss occurred. Many factors can muddy the water in terms of calculating lost business income. Among those that come to mind are inadequate or incomplete records and unrealistic expectations on the part of the insured.

Taking a step back for a moment, lost business income results from the interruption of normal business operations because of direct physical damage of property under a covered cause of loss. The business either shuts down or continues operations in a reduced capacity. In most instances, revenue falls or stops while at least some expenses continue. The insured seeks compensation under the lost business income provisions of its policy.