Business interruption insurance replaces lost income and pays extra expenses if a covered peril disrupts your business. Consider several factors as you evaluate whether this coverage makes sense for your company.
List covered perils
The typical business interruption policy covers perils such as theft, wind, falling objects, fire and lightning. If your business is at risk from one of these perils, you may wish to purchase coverage to protect ongoing operations; see Business Income Coverage (Business Interruption Insurance) for more detail.
Replace lost income
Standard property insurance covers tangible losses, but business interruption insurance adds protection for lost income. If your business cannot operate after a covered loss, you can file a claim to receive compensation for income you would have earned while rebuilding or relocating.
Remember the restoration period
Most policies pay only for losses that occur during the restoration period — the time needed to repair, replace or rebuild property after a covered peril. The length of the restoration period can vary by peril and by policy wording, so review the definition carefully.
Choose the right coverage limit
Your policy limit is the maximum you will receive on a claim, so selecting an adequate limit is important. When estimating a limit, consider how long it could take to resume normal operations and whether you will incur extra expenses while rebuilding; you may also review specialized options like Valued Business Interruption Insurance if valuation methods are a concern.
Questions to help set a limit
- How much time will it take to return your business to normal operational status?
- Is your building well protected and are sprinkler and alarm systems functioning properly?
- Do you have immediate access to comparable commercial space or will it take time to relocate?
- What is your current net income and what ongoing loan payments, taxes and other expenses do you owe?
- How many employees will you continue to pay during an interruption?
Choose riders
Basic business interruption coverage may not cover every cost after a loss. An extra expense rider can pay for higher-than-normal rent, temporary space, or costs to rebuild to current code requirements.
A contingent business interruption rider covers lost profits that result from a covered peril affecting other businesses you depend on, such as suppliers or a hosting provider.
Count the cost
Premiums for business interruption insurance vary widely depending on industry, location, and limits; policies can range from modest annual costs to several thousand dollars. Weigh the premium against the potential expense of being unable to operate during a disruption.
When you consider these factors, you can decide if business interruption insurance fits your risk profile. Your agent can also help you evaluate its importance for your company — talk to your agent.
Frequently Asked Questions
What events trigger business interruption coverage?
Coverage typically requires a covered physical loss or damage from a peril listed in the policy; excluded events will not trigger payment.
How long will the restoration period last?
The restoration period depends on the policy wording and the nature of the loss; some policies define explicit time limits while others tie the period to the time needed to repair or replace property.
Does business interruption insurance cover payroll?
Many policies will cover payroll as an ongoing expense during the restoration period, but coverage details and limits vary by policy.
What is the difference between extra expense and contingent business interruption coverage?
Extra expense pays costs you incur to continue operating after a loss; contingent coverage pays for profits lost because a supplier, customer, or service provider suffers a covered loss.