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

Use and occupancy insurance (U&O) is an obsolete name for what is now called business interruption insurance or business income coverage. It is a type of insurance that covers against 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 against the resulting loss of income. Use and occupancy insurance provided certain coverage through endorsements to property/casualty insurance policies if the equipment or property can no longer be used. 

Understanding Use and Occupancy Insurance (U&O)

Use and occupancy insurance (U&O) reimburses the policyholder for lost business income when a covered incident makes the business location or equipment unusable. Covered incidents include situations like fires, floods, hurricanes, and other disasters that are written into the policy. If a disaster or situation occurs that makes the business location or equipment unusable, but this disaster is not written into the insurance coverage, insurance will not pay for the lost business income.

Use and occupancy insurance (U&O) can pay for a specific amount of lost income that is written into the policy and calculated by the policyholder and the agent who sells the policy based on records of the business income. This type of insurance policy can also pay the insured on a valued basis, or a specified, fixed amount, for each day that the insured is not able to use or occupy the covered property because of an insured peril.

The payable amount can be determined by reviewing past financial records of the business. It is also possible to continue coverage past the date at which the location or equipment are deemed usable again, but this must also 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 taken out on businesses and business locations. However, property insurance only covers the actual physical property, including the location, grounds, equipment, supplies, and merchandise of the business.

Business interruption insurance, in contrast, covers the loss of income from the operations of the business if the property damage forces the business to suspend operations. Having business interruption insurance in an emergency can keep a business operating by paying for fixed costs such as rent, electricity, and business licenses while the location and property are being repaired and restored to functionality.