Running a company can be difficult without the right business insurance. One coverage most business owners need is business interruption insurance, also known as business income insurance and contingent business interruption coverage. It can help replace income you lose if you can’t open temporarily after a covered loss, like property damage.
For example, if a tree falls on your office roof and you need to shut down for repairs, this policy can help cover the costs of your lost income while they restore it. Your business income insurance may also cover a civil authority, like a government-mandated road closure that temporarily shuts down your company.
It’s important to note that a Business Owner’s Policy (BOP) bundles business interruption insurance with coverages like:
- Commercial property insurance
- General liability insurance
- Data breach insurance
What Does Business Interruption Insurance Cover?
If a covered loss forces your business to shut down, your interruption insurance can help cover your operating expenses, like:
- Revenue you’d normally make if your business was open.
- Mortgage, rent and lease payments for the space your business operates from.
- Loan payments that you need to make during that time.
- Taxes, whether you pay them monthly or quarterly.
- Payroll for your employees.
- Relocation costs if you have to move to a new or temporary location because of physical damages.
- Extra expenses if, for example, you need to rent another space to temporarily run your business after a covered loss.
- Training costs for employees to learn how to use new machinery or equipment after a covered loss.
Business Interruption Coverage Restoration Period
The restoration period of your business interruption coverage is the length of time where your policy will help pay for lost income. In most cases, there’s a 48 to 72 hour waiting period before your policy kicks in with income coverage. To see when your restoration period starts and ends, check your policy.
How Much Business Interruption Insurance Coverage Do I Need?
Every business interruption insurance policy will have a coverage limit. This is the amount of coverage you choose to have if you suffer a loss. It can be hard to figure out how much business interruption insurance you need. A good rule of thumb is to use your gross earnings and projections to estimate future profits and determine the right amount of coverage. Remember, if your business interruption costs exceed the coverage limit you choose, you’ll have to pay out of pocket for the extra expenses.
Some questions you can ask yourself to help determine how much coverage you need are:
- How long would it take your company to recover after a physical loss or damage?
- Does your business’ building have fire alarms and sprinklers that are up-to-date?
- If you suffered a covered loss, do you think you could find another location in your area to rent as a temporary spot to do business?
How Much Does Business Interruption Insurance Cost?
The cost of your business interruption or business income coverage may depend on a number of factors, including your:
- Industry
- Number of employees
- Amount of coverage
Costs can also vary depending on your location and your risk of a covered peril or loss. For example, if your business is in an area with a higher risk of wildfires, your cost of business interruption insurance may increase. If your business is in an area with an increased risk of natural disasters, like hurricanes, you may have to pay more for your coverage than businesses located inland.
Business Interruption Insurance Exclusions
Business interruption insurance doesn’t cover:
- Broken items resulting from a covered event or loss.
- Flood or earthquake damage, which you’ll need a separate policy for.
- Undocumented income that’s not listed on your business’ financial records.
- Utilities, because they’re usually turned off when your business closes due to damage.
- Communicable diseases that cause a shutdown in your operation.
Source: The Hartford, “What Is Business Interruption Insurance?” https://www.iii.org website. Accessed February 14, 2022. https://www.thehartford.com/business-insurance/business-interruption-insurance
© Copyright 2022. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented.