Running a business always comes with risks; sometimes, things disrupt operations. A fire, storm, or equipment failure can temporarily shut down your business. That’s where business interruption insurance comes in. This coverage helps replace the income you lose when your business can’t operate due to a covered disaster. It’s not usually sold as a separate policy but added as an endorsement to an existing property or casualty insurance policy.

Key Takeaways About Business Interruption Insurance

Business interruption insurance occurs when your business is forced to stop working due to a disaster, like a fire or a severe storm. It can cover lost income, payroll, taxes, and moving expenses. You won’t be covered if the shutdown is due to something like a pandemic, which some policies specifically exclude.

How Does Business Interruption Insurance Work?

When something unexpected happens, like a fire or flood, and it halts your business, this insurance helps cover the costs while you recover. The policy typically kicks in after a waiting period of 48 to 72 hours. From that point, it can cover lost revenue, operating costs, and additional expenses, like moving to a temporary location.

This insurance usually covers a specific period, often 30 days, but it can be extended with an endorsement, sometimes for up to a year. Depending on the terms of your policy, you’ll get help covering your normal operating costs and sometimes even lost profits.

Types of Business Interruption Coverage

There are different types of business interruption insurance, depending on your needs. Some of the most common include:

1. Business Income Coverage

This helps replace the income your business loses during the shutdown. It can cover rent, utilities, payroll, and other ongoing expenses you would have had even if you weren’t open for business.

2. Extra Expense Coverage

This coverage helps if you have to spend extra money to get your business up and running again. For example, if you need to rent new equipment or office space, it’ll help cover those costs.

3. Contingent Business Interruption Coverage

Sometimes, your business gets interrupted because a key supplier or partner can’t operate. This coverage helps you recover lost income when someone else’s problem causes you to stop working.

4. Civil Authority Coverage

Civil authority coverage kicks in if the government orders a shutdown, like during a natural disaster. It helps cover your losses while you can’t operate due to a government mandate.

What Does Business Interruption Insurance Cover?

Business interruption insurance typically covers several things:

• Lost Profits: It replaces the money you would have earned if the business were open.
• Fixed Costs: Operating expenses that don’t go away when you close, like rent, utilities, and salaries.
• Relocation Costs: This insurance covers the cost if your business needs to move to a temporary location.
• Extra Expenses: Any additional costs to keep the business going, like paying overtime or renting equipment.
• Employee Wages: You can still pay your employees even if you aren’t making any money during the interruption.
• Taxes: Coverage also ensures you can pay your taxes on time, even if your business isn’t operating.

What Business Interruption Insurance Does Not Cover

While it covers a lot, there are also some things this insurance doesn’t cover:

• Broken Items: If a covered event causes damage to windows or equipment, business interruption insurance usually won’t cover the repair costs.
• Flood and Earthquake Damage: Insurance policies often exclude these damages unless you have a separate policy to cover them.
• Undocumented Income: If your business has no income on the financial records, it won’t be covered.
• Utilities: Disasters often shut off utilities, so insurance typically excludes them.
• Pandemics or Viruses: Many business interruption policies, including the COVID-19 pandemic, exclude disease coverage.

What Triggers a Business Interruption Claim?

The most common trigger for a business interruption claim is physical property damage. You can file a claim if a fire, storm, or another covered event damages your property and forces your business to shut down. However, if there’s no physical damage, you may be unable to make a claim, even if you can’t operate your business.

Business Interruption Insurance Costs

Factors like your business size, industry, and location affect the cost of business interruption insurance. If your business is in an area prone to hurricanes, wildfires, or floods, you may pay more for coverage. Your needs can cause costs to range from a few hundred to several thousand dollars each year.

When calculating the cost, consider how much revenue you’d lose if your business had to shut down for a period and the additional expenses you’d incur. It’s important to pick a coverage amount that matches your risk and potential losses.

How Much Coverage Do You Need?

Determining the right amount of coverage for your business can be tricky, but calculating your business’s gross income and expenses is a good rule of thumb. Consider how long your company would take to recover after a disaster and how much it would cost to keep operating.

Ask yourself questions like: How long could your business survive without operating? Do you have backups or systems in place to quickly recover? These answers can help guide your decision on how much coverage to get.

Final Thoughts

If an unexpected event forces your business to close temporarily, business interruption insurance can save you. It helps cover lost income, operating expenses, and even relocation costs, allowing you to get back on track without a financial disaster. Be sure to read your policy carefully to understand what’s covered and what’s not. Choosing the right coverage protects your business from the unexpected and keeps things running smoothly even when the worst happens.