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Business Interruption Insurance

Jason Metz

Business interruption insurance helps you replace lost revenue, pay bills and covers other expenses if your business is affected by a problem covered by your policy, such as a fire, vandalism or equipment damage.

A good business interruption insurance policy can make it seem like a disaster didn't happen (financially, at least).

Generally, business interruption insurance is part of a business owners policy (BOP) or is an endorsement to the business's property insurance. You may see it called "business income coverage."

What's covered by business interruption insurance

If your business was forced to temporarily close, rebuild or relocate due to a problem covered by the policy, business interruption insurance can cover or reimburse the business for the following:

  • Advertising. For example, if you have to operate out of a temporary location.
  • Lost profits.
  • Mortgage or rent.
  • Payroll.
  • Relocation fees.
  • Taxes.
  • Utilities.

What's not covered by business interruption insurance

Business interruption insurance typically doesn't cover a closure due to flood, earthquakes or broken glass.

There may also be time limits on reimbursement, which is sometimes referred to as "the period of restoration." This time typically begins when an event causes the business to close and ends when the damage is repaired or reasonably could have been repaired.

Business interruption insurance costs

The cost of business interruption insurance usually depends:

  • The size of the business.
  • The risk of the business type. For example, a bakery has more risk of a fire than a shoe-repair shop.
  • How much coverage you're buying.

Because insurance prices can vary so much, there's no reliable average-cost number. The best strategy is to get quotes from at least a few companies, or have an independent agent shop prices for you.

To make sure you have enough coverage, consider a worst-case scenario. For example, if a fire wiped out your business, what would it cost to rebuild? Take into account:

  • Lost revenue that includes the expected growth of the business and inflation.
  • Moving and relocation costs.
  • Costs for doing business in a temporary location.
  • The expense to retain staff who can't come to work due to repairs.

Business interruption insurance often has optional endorsements to help close gaps in coverage. Endorsements can include:

  • Civil authority—for losses when a civil authority prohibits access to an immediate area, which in turn affects your business. For example, if the mayor calls for an evacuation or a curfew that impacts the business.
  • Cloud service interruption—losses for unexpected outage of a cloud computer service.
  • Dependent property—for losses when others you depend upon are affected by a problem covered by your policy. For example, if a supplier isn't able to deliver materials to you because of a fire at their place of business.
  • Electronic vandalism—a cyberattack that results in work stoppage. For example, if hackers attack and disable your company's website.
  • Essential personnel—losses if an essential employee is unexpectedly absent.
  • Extended business income—losses as you rebuild your business. For example, if you're a barber and the closure of your shop results in lost clients, this coverage can help replace income as you rebuild clientele.
  • Extra expense coverage—reimburses the business if you have to spend over and above the normal operating costs to avoid shutting down during the restoration of your business.
  • Off-premises operations—losses for work stoppage off-site. For example, if machinery at a job site gets damaged.
  • Utility services—losses due to a disruption of basic utilities to the business premises, such as a disruption to electric or gas service.