Overview
Business interruption (BI) coverage helps replace income a company loses when a covered physical loss temporarily prevents normal operations.
For example, a small online retailer that loses power for several days may lose sales, customer service capacity, and timely deliveries; properly arranged BI limits and extensions can reimburse lost profits and certain extra expenses needed to keep the business running.
For a practical primer on policy features and common scenarios, see Understanding Business Interruption Insurance.
Key takeaways
- BI coverage reimburses lost earnings and can cover extra expenses to reduce downtime.
- Insured values, the length of the indemnity period, and specific extensions determine whether a claim is sufficient to keep the business solvent.
- Common add-ons include contingent BI, payroll coverage, and coverage for service interruptions or civil authority closures.
How it works
After a covered physical loss, an insurer typically measures what the business would have earned during the indemnity period, subtracts saved expenses, and pays the net lost income subject to policy limits and waiting periods.
Policies often include an "extra expense" element that pays reasonable costs to continue operations in a temporary location or to expedite repairs.
To understand how income protection works alongside these features and whether a value-based or sales-based basis makes sense for your operation, review Why Business Income Coverage is a Game-Changer for Your Business.
What it may cover (and what it may not)
Coverage can vary widely by policy form and endorsement, so read policy language and talk through likely loss scenarios with your broker or carrier.
- Lost gross earnings or profits during the period of restoration
- Extra expenses to continue operations or to reduce the length of interruption
- Payroll continuation for key employees to preserve the workforce
- Contingent business interruption for losses at suppliers or key customers
- Service interruption due to power outage, including off-premises lines
- Civil authority closures and ingress/egress restrictions
- Expediting expense for faster repairs
- Loss of attraction if a nearby event or casualty reduces customer traffic
Typical exclusions can include losses from wear and tear, gradual deterioration, or certain types of infectious disease coverage unless specifically endorsed.
Common mistakes to avoid
Underinsuring the business by using outdated revenue estimates can leave you without enough recovery to reopen fully.
Choosing an indemnity period that is too short or forgetting to include contingent suppliers or off-site service interruptions are frequent gaps.
Failing to document pre-loss income, or not keeping records of extra expenses and payroll during the claim period, will slow or reduce recovery payments.
Questions to ask an agent
What indemnity period does this policy use, and is an extended period of indemnity available if recovery takes longer?
Does the policy include contingent BI, civil authority, ingress/egress, and service interruption endorsements that match our supply chain and operations?
How are extra expenses and payroll treated during a claim, and what documentation will the carrier expect?
Next steps
Review your reported values and likely downtime scenarios, and compare them to the limits and endorsements on your current policy.
For additional guidance on policy selection and to review coverages relevant to your operation, see Business Interruption Insurance.
If you want a formal review or a quote, talk to an agent who can help tailor limits, indemnity periods, and endorsements to your needs.
Frequently Asked Questions
What event triggers a business interruption claim?
A covered physical loss or damage to property that causes suspension of operations typically triggers a BI claim, subject to the policy's waiting period and exclusions.
How is lost income calculated?
Insurers generally estimate net profit you would have earned during the indemnity period, subtracting expenses you did not incur because operations were suspended.
Will a supplier outage be covered?
Only if your policy includes contingent business interruption or specific endorsements covering supplier or customer dependencies.
How long does BI coverage pay after a loss?
Payment period depends on the indemnity period in your policy; extended periods are available on many forms for longer recoveries.